The capital investment committee of Cross Continent Trucking Inc. is considering two capital investments. The estimated income from operations and net cash flows from each investment are as follows:

Warehouse Tracking Technology Year Income from Operations Net Cash Flow Income from Operations Net Cash Flow 1 $42,000 $128,000 $88,000 $205,000 2 42,000 128,000 67,000 173,000 3 42,000 128,000 34,000 122,000 4 42,000 128,000 15,000 83,000 5 42,000 128,000 6,000 57,000 Total $210,000 $640,000 $210,000 $640,000

Each project requires an investment of $400,000. 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 0.840 0.751 0.712 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 7 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.

Warehouse Tracking Technology Present value of net cash flow total $ $ Less amount to be invested $ $ Net present value $ $

2. The warehouse has a larger or smaller net present value because larger or smaller cash flows occur earlier in time compared to the tracking technology. Thus, if only one of the two projects can be accepted, the tracking technology or warehouse would be the more attractive.