Problem 26(12)-1B Name: 1. a. Average annual rate of return for both projects: $172,000¸ 5 =18.7% $368,000¸ 2 Net Present Value Analysis Present Val PresentNet Cash FlowNet Cash Value ofTracking $1 at 15%WarehouseTechnologyWarehouse Year 10.870$135,000$108,000$117,391 Year 20.756125,000$108,00094,518 Year 30.658110,000$108,00072,327 Year 40.572100,000$108,00057,175 Year 50.49770,000$108,00034,802 Total$540,000$540,000$376,214 Amount to be invested368,000 Net present value$8,214 2. 1.b. The main objective of financial management is to maximize the wealth of shareholders.On method is in compliance with this objective. Only Warehouse project is acceptable.Because this project generate the positive NPV at th and Storage Inc.'s minimum rate of return is 15%.And average rate of return of the both pr equal.However the company will have to select Warehouse because it has a higher NPV. An project of Greenhouse, major cash inflows to be recovered within 3 years and chance to re other projects than project of Tracking Technology.
