Average Rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of Overnight Express Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows: Distribution Center Expansion Internet Tracking Technology Year Income from Operations Net Cash Flow Income from Operations Net Cash Flow 1 $55,000 $175,000 $116,000 $280,000 2 55,000 175,000 88,000 236,000 3 55,000 175,000 44,000 166,000 4 55,000 175,000 19,000 114,000 5 55,000 175,000 8,000 79,000 Total $275,000 $875,000 $275,000 $875,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Each project requires an investment of $500,000. 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. Round to one decimal place. Average Rate of Return Distribution Center Expansion fill in the blank 1 % Internet Tracking Technology fill in the blank 2 % 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. Distribution Center Expansion Internet Tracking Technology Total present value of net cash flow $fill in the blank 3 $fill in the blank 4 Amount to be invested fill in the blank 5 fill in the blank 6 Net present value $fill in the blank 7 $fill in the blank 8

Average Rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of Overnight Express Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows: Distribution Center Expansion Internet Tracking Technology Year Income from Operations Net Cash Flow Income from Operations Net Cash Flow 1 $55,000 $175,000 $116,000 $280,000 2 55,000 175,000 88,000 236,000 3 55,000 175,000 44,000 166,000 4 55,000 175,000 19,000 114,000 5 55,000 175,000 8,000 79,000 Total $275,000 $875,000 $275,000 $875,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Each project requires an investment of $500,000. 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. Round to one decimal place. Average Rate of Return Distribution Center Expansion fill in the blank 1 % Internet Tracking Technology fill in the blank 2 % 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. Distribution Center Expansion Internet Tracking Technology Total present value of net cash flow $fill in the blank 3 $fill in the blank 4 Amount to be invested fill in the blank 5 fill in the blank 6 Net present value $fill in the blank 7 $fill in the blank 8

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 1PB

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Question

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

The capital investment committee of Overnight Express Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows:

	Distribution Center Expansion		Internet Tracking Technology
Year	Income from Operations	Net Cash Flow		Income from Operations	Net Cash Flow
1	$55,000				$175,000	$116,000	$280,000
2	55,000				175,000	88,000	236,000
3	55,000				175,000	44,000	166,000
4	55,000				175,000	19,000	114,000
5	55,000				175,000	8,000	79,000
Total	$275,000				$875,000	$275,000	$875,000

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Each project requires an investment of $500,000. 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. Round to one decimal place.

	Average Rate of Return
Distribution Center Expansion	fill in the blank 1 %
Internet Tracking Technology	fill in the blank 2 %

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.

	Distribution Center Expansion	Internet Tracking Technology
Total present value of net cash flow	$fill in the blank 3		$fill in the blank 4
Amount to be invested	fill in the blank 5		fill in the blank 6
Net present value	$fill in the blank 7		$fill in the blank 8

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