A capital investment committee is currently considering two projects. The estimated income from operations and net cash flow expected from each project are as follows:

Project A Project B

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Income from Net Cash Income from Net Cash

Year Operations Flow Operations Flow

1 $6,000 $22,000 $13,000 $29,000

2 9,000 25,000 10,000 26,000

3 10,000 26,000 8,000 24,000

4 8,000 24,000 8,000 24,000

5 11,000 27,000 3,000 19,000

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$44,000 $124,000 $42,000 $122,000

Each project requires an investment of $80,000. The committee has selected a rate of 12% for purposes of the net present value analysis.

1. Compute the following:
   1. The average rate of return for each project.
   2. The NPV for each project.

2. Why is the NPV of Project B greater than Project A, even though its average rate of return is less?
3. Which Project would you recommend to the investment committee?
4. Do the above calculations using a 6% rate of return.