Reference no: EM132612238

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%

10.89                 320.797

30.712                  40.636

50.567

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