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:

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:

Each project requires an investment of $$500,000.$ 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 Required:

$1$a$.$ Compute the average rate of return for each investment. If required, round your answer to one decimal place.

Average Rate of Return

$1$b$.$ 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.

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

Nould be the more attractive.