You are considering an investment of $360,000 in either Project A or Project B for Lion Studios Inc. In discussing the two projects with an advisor, you decided that, for the risk involved, a return of 12% on the cash investment would be required. For this purpose, you estimated the following economic factors for the projects:

Although the average rate of return exceeded 12% on both projects, you have tentatively decided to invest in Project B because the rate was higher for Project B. You noted that the total net cash flow from Project B is $547,200, which exceeds that of Project A by $7,200.
1. Determine the average rate of return for both projects.
2. Why is the timing of cash flows important in evaluating capital investments? Calculate the net present value of the two projects at a minimum rate of return of 12% to demonstrate the importance of net cash flows and their timing to these two projects. Round to the nearestdollar.

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Project A Project B Useful life Residual value Net income: 4 years 4 years Year 1 50,000 40,000 25,000 Project A 65,0005 25,000 40,000 58,000 64,200 Project B Net cash flows: 140,000 130,000 115,000 115,000 130,000 148,000 154,200 4