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:

\begin{array}{ccc} \text {Net Cash}& \text { Net Income Flow}&\text { Year }\\\$ 120,000 & \$ 60,000 & 1 \\110,000 & 50,000 & 2 \\105,000 & 45,000 & 4 \\90,000 & 30,000 & 4 \\80,000 & 20,000 &5\\\underline{\$ 505,000}&\underline{\$205,000}\end{array}

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:

\begin{array} { | l | l | } \hline \text { Present } \text { Value } & \text { Year } \\\hline \text { of} \$ 1 \text { at } 12 \% & 1 \\\hline 0.893 & 2 \\\hline 0.797 & 3 \\\hline 0.712 & 4 \\\hline 0.636 & 5 \\\hline 0.567 & \\\hline &\end{array}

Determine (a) the average rate of return on investment, giving effect to depreciation on the investment, and (b) the net present value.

The Net Present Value Has Been Computed for Proposals a and

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