50.1K

Verified Solution

Link Copied!

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:

	Warehouse					Tracking Technology
Year	Income from Operations		Net Cash Flow			Income from Operations		Net Cash Flow
1	$28,500		$91,000			$60,000		$146,000
2	28,500		91,000			46,000		123,000
3	28,500		91,000			23,000		86,000
4	28,500		91,000			10,000		59,000
5	28,500		91,000			3,500		41,000
Total	$142,500		$455,000			$142,500		$455,000

Each project requires an investment of $380,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis.

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

#2 options are: larger/smaller -- larger/smaller -- tracking technology/warehouse

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 5380,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis. Present Value of Si at Compound Interest Compute the average rate of return for each investment. If required, Average Rate of Return Warehouse Tracking Technology % Compute the net present value for each investment. Use the present value of SI table above. If required, use the minus sign to indicate a negative net present value. Present value of net cash flow total Less amount to be invested Net present value The warehouse has a Select net present value because Select cash flows occur earlier in tine compared to the tracking technology. Thus, if only one of the two projects can be accepted, the Select would be the more attractive

Answer & Explanation Solved by verified expert

See Answer