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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
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: Tracking Technology Year WN H 1 2 3 4 5 Total Year 1 2 3 Income from Operations Warehouse $57,000 57,000 57,000 57,000 57,000 $285,000 6% Each project requires an investment of $600,000. 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. 0.943 0.890 Present Value of $1 at Compound Interest 10% 0.840 0.909 Net Cash Flow 0.826 $182,000 182,000 182,000 182,000 182,000 $910,000 0.751 12% 0.893 0.797 0.712 15% 0.870 Income from Operations 0.756 0.658 $120,000 91,000 46,000 20,000 8,000 $285,000 20% 0.833 0.694 Net Cash Flow 0.579 $291,000 246,000 173,000 118,000 82,000 $910,000
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