The capital investment committee of Overnight Express Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows: Distribution Center Expansion Internet Tracking Technology Year Income from Operations Net Cash Flow Income from Operations Net Cash Flow 1 $60,000 $185,000 $126,000 $296,000 2 60,000 185,000 96,000 250,000 3 60,000 185,000 48,000 176,000 4 60,000 185,000 21,000 120,000 5 60,000 185,000 9,000 83,000 Total $300,000 $925,000 $300,000 $925,000 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 Each project requires an investment of $600,000. 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. Required: 1a. Compute the average rate of return for each investment. Round to one decimal place. Average Rate of Return Distribution Center Expansion fill in the blank 1 % Internet Tracking Technology fill in the blank 2 %

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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The capital investment committee of Overnight Express Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows:

	Distribution Center Expansion		Internet Tracking Technology
Year	Income from Operations	Net Cash Flow		Income from Operations	Net Cash Flow
1	$60,000				$185,000	$126,000	$296,000
2	60,000				185,000	96,000	250,000
3	60,000				185,000	48,000	176,000
4	60,000				185,000	21,000	120,000
5	60,000				185,000	9,000	83,000
Total	$300,000				$925,000	$300,000	$925,000

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

Each project requires an investment of $600,000. 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.

Required:

1a. Compute the average rate of return for each investment. Round to one decimal place.

	Average Rate of Return
Distribution Center Expansion	fill in the blank 1 %
Internet Tracking Technology	fill in the blank 2 %

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