Reference no: EM132571909

Sommers Company is evaluating a project requiring a capital expenditure of $300,000. The project has an estimated life of 5 years and no salvage value. The estimated net income and net cash flow from the project are as follows:

The company's minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% is shown in the table below:

Year    Net Income         Net Cash Flow

1            $60,000                  $120,000
2              50,000                    110,000
3              45,000                     105,000
4                30,000                90,000
5              20,000                     80,000
                $205,000              $505,000

The company's minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% is shown in the table below:

                     Present Value
Year             of $1 at 12%

1                      0.893

2                      0.797 

3                    0.712

4                           0.636

5                        0.567

Question a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answer to two decimal places.

Question b. Determine the net present value.