Average Rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of...

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Average Rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of Ellis Transport and

Year 0.797 a u WNW Present Value of $1 at Compound Interest 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.75

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Answer 1

Answer #1

1a	Average rate of return = average income / investment	Warehouse	Tracking Technology
	Average income (325500/5)	65100	65100
	Investment	620000	620000
	Average rate of return = average income / investment	21%	21%
	(65100/((620000+0)/2)


1b		Warehouse	Tracking Technology
	Present value of net cash flow total	773160	817149
	Less: amount to be invested	620000	620000
	Net present value	153160	197149

	Note:
	Warehouse
	Net cash flow	Pv @10%	Present value
	204000	0.909	185436
	204000	0.826	168504
	204000	0.751	153204
	204000	0.683	139332
	204000	0.621	126684
	1020000		773160


	Tracking Technology
	Net cash flow	Pv @10%	Present value
	326000	0.909	296334
	275000	0.826	227150
	194000	0.751	145694
	133000	0.683	90839
	92000	0.621	57132
	1020000		817149


2	The Warehouse has a lower net present value as tracking technology cash flow occur as earlier in time.
	Thus, if only one of the two projects can be accepted, the Tracking technology would be more attractive.

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Answer 2

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