Chapter 25 PR 25-1B Book Show Me How Calculator Average Rate of Return Method, Net Present Value Method, and analysis for a Service Company 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: Tracking Technology Warehouse Net Net Income from Income from Cash Cash Year Operations Operations Flow Flow $61,400 $135,000 34,400 $108,000 1 51,400 2 125,000 34,400 108,000 110,000 3 36,400 34,400 108,000 26,400 4 100,000 34,400 108,000 (3,600) 70,000 34,400 108,000 5 $172,000 $540,000 $172,000 $540,000 Total Each project requires an investment of $368,000. 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 12% Year 6% 10% 15% 20% 0.909 1 0.943 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 0.579 3 0.840 0.751 0.712 0.658 0.683 0.792 0.636 0.572 0.482 0.497 0.402 5 0.747 0.621 0.567 0.705 0.564 0.507 0.432 0.335 0.452 0.279 7 0.665 0.513 0.376 0.627 0.467 0.404 0.327 0.233 0.194 0.592 0.424 0.361 0.284 0.386 0.247 10 0.558 0.322 0.162 Required: 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. 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 $ Amount to be invested Net present value does not. Thus, considering only 2. The net present value exceeds the selected rate established for discounted cash flows (15%), while the investment should be selected. quantitative factors, the