Accounting Week 25

Vanessa Company is evaluating a project requiring a capital expenditure of $480,000. The project has an estimated life of 4 years and no salvage value. The estimated net income and net cash ow from the project are as follows: Year Net Income Net Cash Flow 1 $90,000 $210,000 2 80,000 200,000 3 40,000 160,000 4 30,000 150,000 Total $240,000 $720,000 The company's minimum desired rate of return for net present value analysis is 15%. The present value of $1 at compound interest of 15% for 1, 2, 3, and 4 years is 0.870, 0.756, 0.658, and 0.572, respectively. Determine (a) the average rate of return on investment, using straight-line depreciation, and (b) the net present value