The capital investment committee of Cross Continent Trucking Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows:
Each project requires an investment of $480,000. 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.
Instructions
1. Compute the following:
(a) The average rate of return for each investment. Round to one decimal place.
(b) The net present value for each investment. Use the present value of $1 table appearing in this chapter.
2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two projects.