Financial and Managerial Accounting: PR26-1A The capital investment committee of Cross Continent

Financial and Managerial Accounting

PR26-1A
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:
Warehouse Tracking Technology
Year Income from Operations Net Cash Flow Income from Operations Net Cash Flow
1 42,000 138,000 89,000 185,000
2 42,000 138,000 69,000 165,000
3 42,000 138,000 34,000 130,000
4 42,000 138,000 14,000 110,000
5 42,000 138,000 4,000 100,000
$210,000 $690,000 $210,000 $690,000
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.
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