Average Rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. The estimated Income from operations and net cash flows from each investment are as follows: Warehouse Year Net Cash Flow Income from Operations $48,000 48,000 48,000 48,000 $157,000 157,000 157,000 157,000 157,000 $785,000 Tracking Technology Income from Net Cash Operations Flow $101,000 $251,000 77,000 212,000 38,000 149,000 17,000 102,000 7,000 71,000 $240,000 $785,000 48,000 $240,000 Each project requires an investiment of $480,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% 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 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 0.279 20% 0.633 0.694 Year 1 2 3 4 0 0 10% 0.909 0.826 0.751 0.683 0.621 0.579 6% 0.943 .890 .840 0.792 0.747 0.705 0.665 0.627 0.592 .558 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 5 0.402 0.564 6 7 8 9 10 0.513 0.467 0.424 0.386 0.335 0.279 0.233 0.194 0.162 0 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 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 two projects 2. The warehouse has a can be accepted, the net present value as tracking technology cash flows occur would be the more attractive