Vanessa Company is evaluating a project requiring a capital expenditure of $480,000. The project has an estimated life of 4 years and no salvage value. The company's minimum desired rate of return for net present value analysis is 15%. The present value of $1 at compound interest of 15% for 1, 2, 3, and 4 years is .870, .756, .658, and .572, respectively.
Determine the average rate of return on investment, using straight line depreciation, and (b) the net present value.
a. The average rate of return on investment, using straight line depreciation:
b. The net present value: