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BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an...

BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of 4 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

$ 75,000

$285,000

2

102,000

290,000

3

109,500

190,000

4

    36,000

  125,000

$322,500

$890,000

The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively. Determine: (a) the average rate of return on investment and (b) the net present value.

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