average rate of return method net present value method

Average Rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows: Warehouse Tracking Technology Income from Net Cash Income from Net Cash Year Operations Flow Operations Flow 1 $48,400 $150,000 $102,000 $240,000 2 48,400 150,000 77,000 203,000 3 48,400 150,000 39,000 143,000 48,400 150,000 17,000 98,000 48,400 150,000 7,000 66,000 Total $242,000 $750,000 $242,000 $750,000 4 5 Each project requires an investment of $440,000. 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% 0.943 0.909 0.893 0.870 0.833 2 0,890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0,658 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 1 3 4 S 6 0.705 0.564 0.507 0.432 0.335 2 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 Oo 0.327 0.233 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: Required: 1a. Compute the average rate of return for each investment. Average Rate of Return Warehouse % 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. If required, round to the nearest dollar. Warehouse Tracking Technology Present value of net cash flow total Less amount to be invested Net present value 2. The warehouse has a net present value as trading technology cash flows occur in time. Thus, if only one of the two projects can be accepted, the would be the more attractive