PR $12-1$A Average rate of retum method, net present value method,

and analysis for a service company

The capital investment committee of Iguana Inc. is considering two capital investments. The esti$-$

mated operating income and net cash flows from each investment are as follows:

Each project requires an investment of $$150,000.$ 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.

Instructions

Compute the following:

a$.$ The average rate of return for each investment.

b$.$ The net present value for each investment. Use the present value table appearing in Exhibit $2$

of this chapter. Round present values to the nearest dollar.