Determine the average rate of return on investment

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Vanessa Company is evaluating a project requiring a capital expenditure of $480,000. The project has an estimated life of 4 years and no salvage value. The estimated net income and net cash flow from the project are as follows:

 

Year        net income          net cash flow

1            $90000                $ 210000

2                80000               200000

3                 40000              160000

4                 30000               150000

total            240000             720000

 

The company's minimum desired rate of return for net present value analysis is 15%. The present value of $1 at compound interest of 15% for 1, 2, 3, and 4 years is .870, .756, .658, and .572, respectively.

Determine (a) the average rate of return on investment, using straight line depreciation, and (b) the net present value.

a.  The average rate of return on investment, using straight line depreciation

 

%

b.  The net present value

 

Reference no: EM13342375

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