t
he capital investment committee of Ellis Transport and StorageInc. is considering two investment projects. The estimated incomefrom operations and net cash flows from each investment are asfollows:
| Warehouse | | Tracking Technology |
| Year | Income from
Operations | Net Cash
Flow | | Income from
Operations | Net Cash
Flow |
| 1 | $44,000 | | $137,000 | | | $92,000 | | $219,000 | |
| 2 | 44,000 | | 137,000 | | | 70,000 | | 185,000 | |
| 3 | 44,000 | | 137,000 | | | 35,000 | | 130,000 | |
| 4 | 44,000 | | 137,000 | | | 15,000 | | 89,000 | |
| 5 | 44,000 | | 137,000 | | | 8,000 | | 62,000 | |
| Total | $220,000 | | $685,000 | | | $220,000 | | $685,000 | |
Each project requires an investment of $440,000. Straight-linedepreciation will be used, and no residual value is expected. Thecommittee has selected a rate of 10% for purposes of the netpresent value analysis.
| Present Value of $1 at CompoundInterest |
| 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 eachinvestment. If required, round your answer to one decimalplace.
| Average Rate of Return |
| Warehouse | % |
| Tracking Technology | % |
1b. Compute the net present value for eachinvestment. 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 | $ | $ |
| Less amount to be invested | $ | $ |
| Net present value | $ | $ |
2. The warehouse has a netpresent value as tracking technology cash flowsoccur in time. Thus, if only one of the twoprojects can be accepted, the would be the moreattractive.
