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4 PR 12-1B Average rate of return method, net present value method, and Obj. 2, 3 analysis for a service company The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. The estimated operating income and net cash flows from each investment are as follows: Warehouse Tracking Technology Operating Net Cash Operating Net Cash Year Income Flow Income Flow 1 $ 61,400 $135,000 $ 34,400 $108,000 2 51,400 125,000 34,400 108,000 3 36,400 110,000 34,400 108,000 26,400 100,000 34,400 108,000 5 (3,600) 70,000 34,400 108,000 Total $172,000 $540,000 $172,000 $540,000 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. Instructions 1. Compute the following: a. The average rate of return for each investment. Round to one decimal place. b. The net present value for each investment. Use the present value table appearing in Exhibit 2 of this chapter. Round present values to the nearest dollar. J K L M N 2 1. a. = 8 C D E F G H 1 Problem 26(12)-1B 2 Name: 3 4 5 Average annual rate of return for both projects: 6 7 8 9 10 11 b. Net Present Value Analysis 12 13 14 Present Net Cash Flow 15 Value of Tracking 16 $1 at 15% Warehouse Technology 17 Year 1 18 Year 2 19 Year 3 20 Year 4 21 Year 5 22 Total 23 Amount to be invested Net present value 25 Present Value of Net Cash Flow Tracking Warehouse Technology T 24