Average Rate of Return Method, Net Present Value Method, and Analysis for a service company The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Front-End Loader Greenhouse Operating Net Cash Operating Net Cash Year Income Flow Income Flow 1 $171,000 $111,000 $52,700 52,700 2 171,000 84,000 42,000 $274,000 231,000 162,000 3 52,700 4 52,700 171,000 171,000 171,000 18,000 111,000 5 52,700 8,500 77,000 $855,000 Total $263,500 $855,000 $263,500 Each project requires an investment of $620,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 N 0.890 0.826 0.797 0.756 0.694 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return Front-End Loader 2 % Greenhouse 2 % 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value. Front-End Loader Greenhouse Present value of net cash flow Amount to be invested 620,000 620,000 Net present value 2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two Investments The front-end loader has a net present value because cash flows occur in time compared to the greenhouse. Thus, if only one of the two projects can be accepted, would be the more attractive. the