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Year 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 income from operations and net cash flows from each investment are as follows: Front-End Loader Greenhouse Income from Net Cash Income from Net Cash Operations Flow Operations Flow $60,000 $180,000 $126,000 $301,000 60,000 188,000 96,000 254,000 60,000 188,000 48,000 179,000 4 60,000 188,000 21,000 122,000 60,000 188,000 9,000 84.000 Total $300,000 $940,000 $300,000 $940,000 1 2 UN Each project requires an investment of $600,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 10% 12% 15% 0.870 0.833 20% Year 69 2 0.943 0.909 0.893 2 0.890 0.826 0.797 0.756 0.694 w N 3 0.840 0.751 0.712 0.658 0.579 9,000 60,000 $300,000 185,000 $940,000 84,000 $940,000 Total $300,000 Each project requires an investment of $600,000. Straight-ine depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 10% 15% 20% Year 69 12% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.751 0.658 0.579 0.840 0.792 0.712 0.636 4 0.683 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.432 0.335 7 0.665 0.513 0.507 0.452 0.404 0.376 0.279 8 0.627 0.467 0.327 0.233 9 0.424 0.284 0.592 0.361 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: la. Compute the average rate of return for each investment. If required, round your answer to one decimal place. B 7 0.665 0.513 0.452 0.376 0.279 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 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 Front-End Loader Greenhouse 1b. Compute the net present value for each investment. Use the present value of 51 table above. If required, use the minussion to indicate a negative net present value Front-End Loader Greenhouse Present value of net cash flow Amount to be invested 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, the would be the more attractive Next > Check My Work 4 more Check My Work uses remaining