Question 1

9 10 Required: 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Warehouse ) Tracking Technology 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.572 0.497 0.432 0.376 0.327 0.284 0. 247 0.482 0.402 0.335 0.279 0.233 0.194 0.162 Average Rate of Return 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. Present value of net cash flow total Less amount to be invested Net present value 2. The warehouse has a V Warehouse $ $ $ \"/0 \"/0 DUE UUU Tracking Technology $ $ $ net present value as tracking technology cash flows occur Thus, if only one of the two projects can be accepted, the V would be the more attractive. V in time. 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 Tracking Technology Year Income from Net Cash Income from Net Cash Operations Flow Operations Flow 1 $52,200 $157,000 $110,000 $251,000 2 52,200 157,000 84,000 212,000 3 52,200 157,000 42,000 149,000 4 52,200 157,000 18,000 102,000 5 52,200 157,000 7,000 71,000 ) Total $251,000 $785,000 $261,000 $785,000 Each project requires an investment of $580,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% 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 0.870I 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 Average Rate of Return, Cash Payback Period, Net Present Value Method Bi-Coastal Railroad Inc. is considering acquiring equipment at a cost of $188,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $47,000. The company's minimum desired rate of return for net present value analysis is 10%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Compute the following: a. The average rate of return, assuming the annual earnings are equal to the net cash flows less the annual depreciation expense on the equipment. If required, round your answer to one decimal place. Internal Rate of Return Method The internal rate of return method is used by King Bros. Construction Co. in analyzing a capital expenditure proposal that involves an investment of $90,400 and annual net cash ows of $16,000 for each of the 10 years of its useful life. Present Value of an Annuity of $1 at Compound Interest Ye a r 6% 1 00/0 1 20/0 1 5 % 2 0 % 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 7.360 6.145 5.650 5.019 4.192 H O a. Determine a present value factor for an annuity of $1 which can be used in determining the internal rate of return. If required, round your answer to three decimal places. :1 b. Using the factor determined in part (a) and the present value of an annuity of $1 table above, determine the internal rate of return for the proposal