1. The capital investment committee of Arches Landscaping Company is considering

The capital investment committee of Arches Landscaping Company is considering

The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated income from operations and net cash flows from each investment are as follows:

Each project requires an investment of $75,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis.

Instructions
1. Compute the following:
A. The average rate of return for each investment.
B. The net present value
 for each investment. Use the present value of $1 table appearing in this chapter (Exhibit 2). (Round present values to the nearest dollar.)
2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.

Exhibit 2

 

Transcribed Image Text:

Front-End Loader Greenhouse Income from Operations Net Cash Flow Income from Net Cash Flow Year Operations 1 $25,000 $ 40,000 $11,250 $ 26,250 2 20,000 35,000 11,250 26,250 3 7,000 22,000 11,250 26,250 4 3,000 18,000 11,250 26,250 11,250 $56,250 26,250 $131,250 5 1,250 $56,250 16,250 $131,250 Total Front-End Loader Greenhouse Income from Operations Net Cash Flow Income from Net Cash Flow Year Operations 1 $25,000 $ 40,000 $11,250 $ 26,250 2 20,000 35,000 11,250 26,250 3 7,000 22,000 11,250 26,250 4 3,000 18,000 11,250 26,250 11,250 $56,250 26,250 $131,250 5 1,250 $56,250 16,250 $131,250 Total

Answer rating: 100% (QA)

Instructions 1 Compute the following A The average rate of return for each investment frontend loade... View the full answer