Each project requires an investment of 620000 straight-line


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:


Warehouse
Tracking Technology
Year Income from
Operations
Net Cash
Flow

Income from
Operations
Net Cash
Flow
1 $46,500
$150,000

$98,000
$240,000
2 46,500
150,000

74,000
203,000
3 46,500
150,000

37,000
143,000
4 46,500
150,000

16,000
98,000
5 46,500
150,000

7,500
66,000
Total $232,500
$750,000

$232,500
$750,000

Each project requires an investment of $620,000. 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
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 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 present above.


Warehouse Tracking Technology
Present value of net cash flow total: $ $
Less amount to be invested: $ $
Net present value: $

 

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Accounting Basics: Each project requires an investment of 620000 straight-line
Reference No:- TGS0776923

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