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Problem:

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	$ 90,000	$210,000
2	80,000	200,000
3	40,000	160,000
4	30,000	150,000
	$240,000	$720,000

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.

Required:

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

Note: Provide support for your rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91164521

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