Average Rate of Return Method, Net Present Value Method, andAnalysis

The capital investment committee of Ellis Transport and StorageInc. is considering two investment projects. The estimated incomefrom operations and net cash flows from each investment are asfollows:

	Warehouse					Tracking Technology
Year	Income from Operations		Net Cash Flow			Income from Operations		Net Cash Flow
1	$44,000		$143,000			$92,000		$229,000
2	44,000		143,000			70,000		193,000
3	44,000		143,000			35,000		136,000
4	44,000		143,000			15,000		93,000
5	44,000		143,000			8,000		64,000
Total	$220,000		$715,000			$220,000		$715,000

Each project requires an investment of $400,000. Straight-linedepreciation will be used, and no residual value is expected. Thecommittee has selected a rate of 10% for purposes of the netpresent value analysis.

Present Value of $1 at CompoundInterest
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

Required:

1a. Compute the average rate of return for eachinvestment. If required, round your answer to one decimalplace.

	Average Rate of Return
Warehouse	%
Tracking Technology	%

1b. Compute the net present value for eachinvestment. Use the present value of $1 table above. If required,use the minus sign to indicate a negative net present value.

	Warehouse	Tracking Technology
Present value of net cash flow total	$	$
Less amount to be invested	$	$
Net present value	$	$

2. The warehouse has a   netpresent value as tracking technology cash flowsoccur   in time. Thus, if only one of the twoprojects can be accepted, the   would be the moreattractive.