Average Rate of Return Method, Net Present Value Method, and analysis for a Service Company The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. The estimated operating income and net cash flows from each investment are as follows: Warehouse Tracking Technology Operating Year Income Net Cash Flow Operating Net Cash Income Flow 1 $ 61,400 $135,000 $34,400 $108,000 2 51,400 125,000 34,400 108,000 3 36,400 110,000 34,400 108,000 4 26,400 100,000 34,400 108,000 5 (3,600) 70,000 34,400 108,000 Total $172,000 $540,000 $172,000 $540,000 Each project requires an investment of $368,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 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 Previous