Average Rate of Return Method, Net Present Value Method, and Analysis

The capital investment committee of Overnight Express Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows:

	Distribution Center Expansion									Internet Tracking Technology
Year	Income from Operations				Net Cash Flow					Income from Operations				Net Cash Flow
1	$ 66,000				$ 226,000					$200,000				$ 360,000
2	66,000				226,000					90,000				250,000
3	66,000				226,000					30,000				190,000
4	66,000				226,000					10,000				170,000
5	66,000				226,000					0				160,000
Total	$330,000				$1,130,000					$330,000				$1,130,000

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	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

Each project requires an investment of $800,000. 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.

Required:

1a. Compute the average rate of return for each investment. Round to one decimal place.

	Average Annual Rate of Return
Distribution Center Expansion	%
Internet Tracking Technology	%

1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value.

	Distribution Center Expansion		Internet Tracking Technology
Present value of net cash flow total	$		$
Amount to be invested
Net present value	$		$