CH 25-1

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

The capital investment committee of Cross Continent Trucking Inc. is considering two capital investments. The estimated income from operations and net cash flows from each investment are as follows:

Each project requires an investment of $360,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis.

Warehouse Tracking Technology Income from Net Cash Income from Net Cash Year Operations Flow Operations Flow $30,600 30,600 30,600 30,600 30,600 $153,000 $95,000 95,000 95,000 95,000 95,000 $475,000 $64,000 49,000 24,000 11,000 5,000 $153,000 $152,000 128,000 90,000 62,000 43,000 $475,000 2 4 Total