Warehouse Tracking Technology Average Rate of Return 22 % 22 % 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. Present value of net cash flow total Warehouse 545,760 Tracking Technology 586,768 X Less amount to be invested Net present value 2. The warehouse has a smaller accepted, the tracking technology, 400,000. 145,760 400,000 186768 X net present value as tracking technology cash flows occur earlier would be the more attractive in time. Thus, if only one of the two projects can be Check My Work 1a. Divide the estimated average annual income by the average investment. 1b. For each investment, multiply the present value factor for each year by that year's net cash flow. Subtract the amount to be invested from the total present value of the net cash flow. Which investment offers the more favorable net present value? 2. Consider when cash flows are received and the time value of money. 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 Income from Year Operations Net Cash Flow Income from Net Cash Operations. Flow 1 $44,000 $144,000 $92,000 $230,000 44,000 144,000 70,000 194,000 44,000 144,000 35,000 137,000 44,000 144,000 15,000 94,000 44,000 144,000 Total $220,000 $720,000 8,000 $220,000 65,000 $720,000 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 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 4 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 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 10% for purt of the net present value analysis Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0,636 0.577 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 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 101 0.556 0.386 0.322 0.247 0.162 Required: 1a. Compute the average rate of return for each investment. Average Rate of Return Warehouse Check My Work 27%6 Ne All work saved Save and Ext Submit Assignment for c