Average rate of return method, net present value method, and analysis for a service company The capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Robotic Assembler Robotic Assembler Warehouse Operating Year Operating Income Net Cash Flow Income Warehouse Net Cash Flow 1 $43,700 $138,000 $92,000 $221,000 2 43,700 138,000 70,000 186,000 43,700 138,000 35,000 131,000 4 43,700 138,000 15,000 90,000 5 43,700 138,000 6,500 62,000 Total $218,500 $690,000 $218,500 $690,000 Each project requires an investment of $460,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 2 0.943 0.890 0.909 0.893 0.870 0.833 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Robotic Assembler Warehouse Average Rate of Return 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value. Robotic Assembler Warehouse Present value of net cash flow Amount to be invest Net present value 2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. The robotic assembler has a net present value because cash flows occur in time compared to the warehouse. Thus, if only one of the two projects can be accepted, the would be the more attractive.