Average Rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows: Warehouse Tracking Technology Income from Income from Net Cash Net Cash Year Operations Flow Operations Flow $36,000 $108,000 $76,000 $173,000 1 36,000 108,000 58,000 146,000 29,000 3 36,000 108,000 103,000 108,000 4 36,000 13,000 70,000 108,000 48,000 5 36,000 4,000 $180,000 $540,000 $180,000 $540,000 Total Each project requires an investment of $360,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.833 1 0.909 0.893 0.870 2 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 st 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 0.665 0.513 7 0.452 0.376 0.279 0.327 8 0.627 0.467 0.404 0.233 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: la. 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 above. If required, use the minus sign to indicate a negative net present value. Warehouse Tracking Technology Present value of net cash flow total larger Less amount to be invested smaller Net present value in time. Thus, if 2. The warehouse has a net present value as tracking technology cash flows occur would be the more attractive. only one of the two projects can be accepted, the Ln

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Average Rate of Return Method, Net Present Value Method, and Analysis
The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. The estimated income from
operations and net cash flows from each investment are as follows:
Warehouse
Tracking Technology
Income from
Income from
Net Cash
Net Cash
Year
Operations
Flow
Operations
Flow
$36,000
$108,000
$76,000
$173,000
1
36,000
108,000
58,000
146,000
29,000
3
36,000
108,000
103,000
108,000
4
36,000
13,000
70,000
108,000
48,000
5
36,000
4,000
$180,000
$540,000
$180,000
$540,000
Total
Each project requires an investment of $360,000. Straight-line depreciation will be used, and no residual value is expected. The committee has
selected a rate of 12% for purposes of the net present value analysis.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
0.943
0.833
1
0.909
0.893
0.870
2
0.890
0.826
0.797
0.756
0.694
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
st
Transcribed Image Text:Average Rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows: Warehouse Tracking Technology Income from Income from Net Cash Net Cash Year Operations Flow Operations Flow $36,000 $108,000 $76,000 $173,000 1 36,000 108,000 58,000 146,000 29,000 3 36,000 108,000 103,000 108,000 4 36,000 13,000 70,000 108,000 48,000 5 36,000 4,000 $180,000 $540,000 $180,000 $540,000 Total Each project requires an investment of $360,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.833 1 0.909 0.893 0.870 2 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 st
5
0.747
0.621
0.567
0.497
0.402
6
0.705
0.564
0.507
0.432
0.335
0.665
0.513
7
0.452
0.376
0.279
0.327
8
0.627
0.467
0.404
0.233
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162
Required:
la. 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 above. If required, use the minus sign to indicate a
negative net present value.
Warehouse
Tracking Technology
Present value of net cash flow total
larger
Less amount to be invested
smaller
Net present value
in time. Thus, if
2. The warehouse has a
net present value as tracking technology cash flows occur
would be the more attractive.
only one of the two projects can be accepted, the
Ln
Transcribed Image Text:5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 0.665 0.513 7 0.452 0.376 0.279 0.327 8 0.627 0.467 0.404 0.233 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: la. 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 above. If required, use the minus sign to indicate a negative net present value. Warehouse Tracking Technology Present value of net cash flow total larger Less amount to be invested smaller Net present value in time. Thus, if 2. The warehouse has a net present value as tracking technology cash flows occur would be the more attractive. only one of the two projects can be accepted, the Ln
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