Reference no: EM132622139

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	105,000	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%

10.893

20.797

30.7124

0.636

50.567

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.