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 capital investments. The estimated income from operations and net cash flows from each investment are as follows: 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 15% for purposes of the net present value analysi Compute the average rate of return for each investment. If required, round your answer to one decimal place. 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. The warehouse has a net present value because cash flows occur earlier in time compared to the tracking technology. Thus, if only one of the two projects can be accepted, the

Explanation / Answer

1a Average rate of return for each investment correct 14% for warehouse and 14% for tracking technology

1b Warehouse Tracking Technology

Present Value of net cash flow $ 459361.00 $497652 .00

Less- amount to be invested $600000.00 $600000.00

Net present value - $140639.00 - $102348.00

   

2 Advice , in this case both projects NPV in negative value but tracking technology

,s NPV higher than warehouse , hence investor should invest in tracking project

2 Advice , in this case both projects NPV in negative value but tracking technology

,s NPV higher than warehouse , hence investor should invest in tracking project

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