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 Income from Income from Net Cash Net Cash Flow Year Operations Operations Flow 1 $63,000 $190,000 $132,000 $304,000 2 63,000 190,000 101,000 257,000 63,000 190,000 50,000 181,000 63,000 190,000 22,000 124,000 5 63,000 190,000 10,000 84,000 Total $315,000 $950,000 $315,000 $950,000 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 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 0.870 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. 3 4 1a. Compute the average rate of return for each investment. 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 Less amount to be invested Net present value 2. The warehouse has a in time. Thus, if only one of net present value as tracking technology cash flows occur would be the more attractive. the two projects can be accepted, the