The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. 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 $44,000 $145,000 $92,000 $232,000 2 44,000 145,000 70,000 196,000 3 44,000 145,000 35,000 138,000 4 44,000 145,000 15,000 94,000 5 44,000 145,000 8,000 65,000 Total $220,000 $725,000 $220,000 $725,000 Each project requires an investment of $440,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% 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 Required: 1a. Compute the average rate of return for each investment. Average Rate of Return Warehouse fill in the blank 1% 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. If required, round to the nearest dollar. Warehouse Tracking Technology Present value of net cash flow total $fill in the blank 3 $fill in the blank 4 Less 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 2. The warehouse has a net present value as tracking technology cash flows occur in time. Thus, if only one of the two projects can be accepted, the would be the more attractive.

The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. 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 $44,000 $145,000 $92,000 $232,000 2 44,000 145,000 70,000 196,000 3 44,000 145,000 35,000 138,000 4 44,000 145,000 15,000 94,000 5 44,000 145,000 8,000 65,000 Total $220,000 $725,000 $220,000 $725,000 Each project requires an investment of $440,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% 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 Required: 1a. Compute the average rate of return for each investment. Average Rate of Return Warehouse fill in the blank 1% 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. If required, round to the nearest dollar. Warehouse Tracking Technology Present value of net cash flow total $fill in the blank 3 $fill in the blank 4 Less 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 2. The warehouse has a net present value as tracking technology cash flows occur in time. Thus, if only one of the two projects can be accepted, the would be the more attractive.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7PA: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

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	Warehouse		Tracking Technology
Year	Income from Operations	Net Cash Flow		Income from Operations	Net Cash Flow
1	$44,000		$145,000			$92,000	$232,000
2	44,000		145,000			70,000	196,000
3	44,000		145,000			35,000	138,000
4	44,000		145,000			15,000	94,000
5	44,000		145,000			8,000	65,000
Total	$220,000		$725,000			$220,000	$725,000

Each project requires an investment of $440,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% 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

Required:

1a. Compute the average rate of return for each investment.

	Average Rate of Return
Warehouse	fill in the blank 1%
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. If required, round to the nearest dollar.

	Warehouse	Tracking Technology
Present value of net cash flow total	$fill in the blank 3	$fill in the blank 4
Less 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

2. The warehouse has a

net present value as tracking technology cash flows occur

in time. Thus, if only one of the two projects can be accepted, the

would be the more attractive.

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