CAM Co. is evaluating a project requiring a capital expenditure of $619,200. 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 CashFlow
|
|
1
|
$ 65,000
|
$240,000
|
|
2
|
92,000
|
260,000
|
|
3
|
100,000
|
160,000
|
|
4
|
52,600
|
70,000
|
|
$309,600
|
$730,000
|
|
========
|
========
|
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, giving effect to depreciation on the investment, and (b) the net present value.