Reference no: EM132617274

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:

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:

Year       Present Value of $1 at 12%

1                     0.893

2                     0.797

3                     0.712

4                      0.636

5                       0.567

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

Problem b. Determine the net present value.