Reference no: EM132547283

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

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.