CAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of four years and no salvage value. The estimated net income and net cash flow from the project are as follows:
Year Net Income Net Cash Flow
1 $ 75,000 $285,000
2 102,000 290,000
3 109,500 190,000
4 36,000 125,000
$322,500 $890,000
The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712, and .636, respectively. Determine:
(a)The average rate of return on investment, including the effect of depreciation on the investment, and (b) the net present value.