The capital investment committee of Cross Continent Trucking Inc. is considering

Question

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:

Each project requires an investment of $460,000. 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.

Required:

1a.  Compute the average rate of return for each investment. If required, round your answer to one decimal place.

1b.  Compute the net present value for each investment. Use the present value of $1 table present above.

Warehouse Tracking Technology Year Income from
Operations Net Cash
Flow Income from
Operations Net Cash
Flow 1 $50,600 $154,000 $106,000 $246,000 2 50,600 154,000 81,000 208,000 3 50,600 154,000 40,000 146,000 4 50,600 154,000 18,000 100,000 5 50,600 154,000 8,000 70,000 Total $253,000 $770,000 $253,000 $770,000

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Warehouse = Average Income/Average Investment*100 = (253000/5)/(460000/2)*100 = 22%

Tracking Technology = Average Income/Average Investments*100 = (253000/5)/(460000/2)*100 = 22%

Part B:

Thanks.

Warehouse Tracking Technology Present value of net cash flow total: 583660 616838 Less amount to be invested: 460000 460000 Net present value: 123660 156838

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