Chapter 25 PR 25-1B O 1. PR.25-01B 1 eBook Show Me How 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 income from operations and net cash flows from each investment are as follows: : Warehouse Tracking Technology Net Net Year Income from Operations Cash Flow Income from Operations Flow 1 $ 61,400 $135,000 $ 34,400 $108,000 2 51,400 34,400 108,000 125,000 110,000 3 3 36,400 34,400 108,000 4 26,400 100,000 34,400 34,400 108,000 108,000 5 (3,600) 70,000 Total 5172,000 $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 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.482 0.572 0.497 5 0.747 0.621 0.567 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 Check My Work Progress: 1/1 items Assignment Score: 0.0% Email Instructor Save and Exit Submit Assignment for Grading Chapter 25 PR 25-1B eBook Z 0.890 Show Me How 0.826 0.797 0.751 0,712 0.756 0.694 1. PR.25-01B 3 0.840 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 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 % 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. If required, round to the nearest dollar. Warehouse Tracking Technology Present value of net cash flow total S Amount to be invested S $ Net present value $ does 2. The net present value exceeds the selected rate established for discounted cash flows (15%), while the not. Thus, considering only quantitative factors, the investment should be selected. Check My Work Progress: 1/1 Items Assignment Score: 0.0% Email Instructor Save and Exit Submit Assignment for Grading