The capital investment committee of Ellis Transport and Storage Inc. is consider
ID: 2405492 • Letter: T
Question
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:
Each project requires an investment of $368,000. 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.
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 above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest dollar.
Warehouse Tracking Technology Year Income from Operations Net Cash Flow Income from Operations Net Cash Flow 1 $ 61,400 $135,000 $ 34,400 $108,000 2 51,400 125,000 34,400 108,000 3 36,400 110,000 34,400 108,000 4 26,400 100,000 34,400 108,000 5 (3,600) 70,000 34,400 108,000 Total $172,000 $540,000 $172,000 $540,000Explanation / Answer
1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place.
Warehouse = (172000/5)*100/184000 = 18.7%
Tracking technology = 34400*100/184000 = 18.7%
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 376320 108000*3.353 = 362124 Amount to be invested -368000 -368000 Net present value 8320 -5876Related Questions
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