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 Net Cash Operating Income Net Cash Flow Operating Income Year Flow $38,000 $80,000 $119,000 119,000 38,000 61,000 $190,000 161,000 113,000 77,000 38,000 119,000 30,000 38,000 119,000 13,000 38,000 119,000 6,000 54,000 Total $190,000 $595,000 $190,000 $595,000 Each project requires an investment of $380,000. 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 0.893 0.833 0.943 0.890 0.909 0.826 0.797 0.870 0.756 0.658 0.694 0.840 0.751 0.712 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.279 0.627 0.467 0.404 0.233 0.376 0.327 0.284 0.247 0.592 0.424 0.361 0.194 10 0.558 0.386 0.322 0.162 Required: 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return 19 X % Front-End Loader Greenhouse 19 X % 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 $ 451,010 400,000 X $ 476,684 400,000 x Amount to be invested Net present value 51,010 * $ 76,684 x