Average rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of Elis Transport and Storage Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows: Year Warehouse Income from Net Cash Operations Flow $52,800 $171,000 52,800 171,000 52,800 171,000 1 2 Tracking Technology Income from Net Cash Operations Flow $111,000 $274,000 84,000 231,000 42,000 162,000 18,000 111,000 9,000 77,000 $264,000 $855,000 3 4 171,000 5 52,800 52,800 $264,000 171.000 Total $855,000 Each project requires an investment of $480,000. 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 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 -6 0.564 0.507 0.335 0.705 0.665 0.432 0.376 7 0.513 0.452 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 each investment. If required, round your answer to one decimal place. Average Rate of Return Warehouse % Tracking Technology 96 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 Less amount to be invested $ $ Net present value in time. Thus, if only one of the 2. The warehouse has a two projects can be accepted, the net present value as tracking technology cash flows occur would be the more attractive