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Compute the average rate of return for each investment. If required, round your answer to one decimal place.

Compute the average rate of return for each investment. If required, round your answer to one decimal place.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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# Investment Analysis Exercise This exercise involves tasks related to computing the average rate of return and net present value (NPV) for proposed investments. Below is a detailed transcription of the provided worksheet. ## Present Value of $1 Table This table shows the present value of $1 for various years and interest rates: | Year | 4% | 5% | 6% | 7% | |------|-------|-------|-------|-------| | 1 | 0.962 | 0.952 | 0.943 | 0.935 | | 2 | 0.925 | 0.907 | 0.890 | 0.873 | | 3 | 0.889 | 0.864 | 0.840 | 0.816 | | 4 | 0.855 | 0.823 | 0.792 | 0.763 | | 5 | 0.822 | 0.784 | 0.747 | 0.713 | | 6 | 0.790 | 0.746 | 0.705 | 0.666 | | 7 | 0.760 | 0.711 | 0.665 | 0.623 | | 8 | 0.731 | 0.677 | 0.627 | 0.582 | | 9 | 0.703 | 0.645 | 0.592 | 0.544 | |10 | 0.676 | 0.614 | 0.558 | 0.508 | ## Required Tasks: ### 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 $1 table above. If required, use the minus sign to indicate a negative net present value (NPV). **Warehouse:** - Present value of net cash flow total: `$ _______` - Less amount to be invested: `$ _______` - Net present value: `$ _______` **Tracking Technology:** - Present value of net cash flow total: `$ _______` -
Transcribed Image Text:# Investment Analysis Exercise This exercise involves tasks related to computing the average rate of return and net present value (NPV) for proposed investments. Below is a detailed transcription of the provided worksheet. ## Present Value of $1 Table This table shows the present value of $1 for various years and interest rates: | Year | 4% | 5% | 6% | 7% | |------|-------|-------|-------|-------| | 1 | 0.962 | 0.952 | 0.943 | 0.935 | | 2 | 0.925 | 0.907 | 0.890 | 0.873 | | 3 | 0.889 | 0.864 | 0.840 | 0.816 | | 4 | 0.855 | 0.823 | 0.792 | 0.763 | | 5 | 0.822 | 0.784 | 0.747 | 0.713 | | 6 | 0.790 | 0.746 | 0.705 | 0.666 | | 7 | 0.760 | 0.711 | 0.665 | 0.623 | | 8 | 0.731 | 0.677 | 0.627 | 0.582 | | 9 | 0.703 | 0.645 | 0.592 | 0.544 | |10 | 0.676 | 0.614 | 0.558 | 0.508 | ## Required Tasks: ### 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 $1 table above. If required, use the minus sign to indicate a negative net present value (NPV). **Warehouse:** - Present value of net cash flow total: `$ _______` - Less amount to be invested: `$ _______` - Net present value: `$ _______` **Tracking Technology:** - Present value of net cash flow total: `$ _______` -
### Capital Investment Analysis for Ellis Transport and Storage Inc. **Overview:** The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects: Warehouse and Tracking Technology. This analysis provides estimated income from operations and net cash flows for both investments over five years. **Investment Projections:** **Warehouse Investment:** | Year | Income from Operations | Net Cash Flow | |------|------------------------|---------------| | 1 | $60,000 | $187,000 | | 2 | $60,000 | $187,000 | | 3 | $60,000 | $187,000 | | 4 | $60,000 | $187,000 | | 5 | $60,000 | $187,000 | |**Total**| **$300,000** | **$935,000** | **Tracking Technology Investment:** | Year | Income from Operations | Net Cash Flow | |------|------------------------|---------------| | 1 | $126,000 | $299,000 | | 2 | $96,000 | $252,000 | | 3 | $48,000 | $178,000 | | 4 | $21,000 | $122,000 | | 5 | $9,000 | $84,000 | |**Total**| **$300,000** | **$935,000** | Each project requires an initial investment of $600,000. Straight-line depreciation will be applied, and no residual value is expected at the end of the investment period. The committee has chosen a discount rate of 12% for net present value analysis. **Present Value of $1 at Compound Interest:** This table assists in calculating the present value of future cash flows, given various interest rates from 6% to 20%. | Year | 6% | 10% | 12% | 15% | 20% | |------|------|------|------|------|------| | 1 | 0.943| 0.909| 0.893| 0.870| 0.833| | 2 | 0.890| 0.826| 0.797|
Transcribed Image Text:### Capital Investment Analysis for Ellis Transport and Storage Inc. **Overview:** The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects: Warehouse and Tracking Technology. This analysis provides estimated income from operations and net cash flows for both investments over five years. **Investment Projections:** **Warehouse Investment:** | Year | Income from Operations | Net Cash Flow | |------|------------------------|---------------| | 1 | $60,000 | $187,000 | | 2 | $60,000 | $187,000 | | 3 | $60,000 | $187,000 | | 4 | $60,000 | $187,000 | | 5 | $60,000 | $187,000 | |**Total**| **$300,000** | **$935,000** | **Tracking Technology Investment:** | Year | Income from Operations | Net Cash Flow | |------|------------------------|---------------| | 1 | $126,000 | $299,000 | | 2 | $96,000 | $252,000 | | 3 | $48,000 | $178,000 | | 4 | $21,000 | $122,000 | | 5 | $9,000 | $84,000 | |**Total**| **$300,000** | **$935,000** | Each project requires an initial investment of $600,000. Straight-line depreciation will be applied, and no residual value is expected at the end of the investment period. The committee has chosen a discount rate of 12% for net present value analysis. **Present Value of $1 at Compound Interest:** This table assists in calculating the present value of future cash flows, given various interest rates from 6% to 20%. | Year | 6% | 10% | 12% | 15% | 20% | |------|------|------|------|------|------| | 1 | 0.943| 0.909| 0.893| 0.870| 0.833| | 2 | 0.890| 0.826| 0.797|
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