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CAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of four 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              $ 75,000              $285,000
2              102,000                   290,000
3              109,500                   190,000
4                 36,000                  125,000
                $322,500                 $890,000

The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712, and .636, respectively. Determine:

(a)The average rate of return on investment, including the effect of depreciation on the investment, and (b) the net present value.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9951648

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