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 Year Income from Operations Net Cash Flow Income from Operations Net Cash Flow 1 $42,000 $131,000 $88,000 $210,000 2 42,000 131,000 67,000 177,000 3 42,000 131,000 34,000 124,000 4 42,000 131,000 15,000 85,000 5 42,000
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 Year Income from Operations Net Cash Flow Income from Operations Net Cash Flow 1 $42,000 $131,000 $88,000 $210,000 2 42,000 131,000 67,000 177,000 3 42,000 131,000 34,000 124,000 4 42,000 131,000 15,000 85,000 5 42,000
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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Question
9. 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 | ||||||||
| Year | Income from Operations |
Net Cash Flow |
Income from Operations |
Net Cash Flow |
|||||
| 1 | $42,000 | $131,000 | $88,000 | $210,000 | |||||
| 2 | 42,000 | 131,000 | 67,000 | 177,000 | |||||
| 3 | 42,000 | 131,000 | 34,000 | 124,000 | |||||
| 4 | 42,000 | 131,000 | 15,000 | 85,000 | |||||
| 5 | 42,000 | 131,000 | 6,000 | 59,000 | |||||
| Total | $210,000 | $655,000 | $210,000 | $655,000 |
Each project requires an investment of $420,000. Straight-line
| Present Value of $1 at |
|||||
| 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 |
Transcribed Image Text: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
$1
Less amount to be invested
Net present value
2. The warehouse has a
net present value as tracking technology cash flows occur
in time. Thus, if only
one of the two projects can be accepted, the
would be the more attractive.
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