Average Rate of Return Method, Net Present Value Method, and Analysis The capita

Question

Average Rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of Cross Continent Trucking Inc. is considering two investments. The estimated income from operations and net cash flows from each investment are as follows: Warehouse Tracking Technology Income from Operations Net Cash Flow Income from Operations Net Cash Year Flow $45,600 45,600 45,600 45,600 45,600 $228,000 $150,000 150,000 150,000 150,000 150,000 50,000 $96,000 73,000 36,000 16,000 7,000 $228,000 $240,000 203,000 143,000 98,000 66,000 750,000 2 3 Total Each project requires an investment of $480,000. Straight-tine depreciation residual value is expected. The committee has selected a rate value analysis. will be used, and no of 15% for purposes of the net present Present Value of $1 at Compound Interest Year 69%% 10% 12% 15% 2046 0.943 0.909 0.893 0.870 0.833

Explanation / Answer

AVERAGE RATE OF RETURN

NPV

PARTICULRAS    WAREHOUSE TRACKING TECHNOLOGY    initial investment A 480000 480000 investment per year B 96000 96000 income from operation C 228000 228000 average income per year D 45600 45600 ARR (D/B*100) E 47.5% 47.5%

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