The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
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 Net Cash Operating Year Income Flow Income Flow 1 $36,100 $114,000 $76,000 $182,000 2 36,100 114,000 58,000 154,000 3 36,100 114,000 29,000 108,000 4 36,100 114,000 13,000 74,000 5 36,100 114,000 4,500 52,000 Total $180,500 $570,000 $180,500 $570,000 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 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 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. Front-End Loader Greenhouse Average Rate of Return % % 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. Present value of net cash flow Front-End Loader Greenhouse 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. 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 Net Cash Operating Year Income Flow Income Flow 1 $36,100 $114,000 $76,000 $182,000 2 36,100 114,000 58,000 154,000 3 36,100 114,000 29,000 108,000 4 36,100 114,000 13,000 74,000 5 36,100 114,000 4,500 52,000 Total $180,500 $570,000 $180,500 $570,000 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 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 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. Front-End Loader Greenhouse Average Rate of Return % % 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. Present value of net cash flow Front-End Loader Greenhouse 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.
Expert Answer:
Related Book For
Financial and Managerial Accounting Using Excel for Success
ISBN: 978-1111993979
1st edition
Authors: James Reeve, Carl S. Warren, Jonathan Duchac
Posted Date:
Students also viewed these accounting questions
-
When comparing Traditional Project Management Vs. Agile, please respond to the following questions. 1) How is project work directed and managed? 2) How is risk managed?
-
In a financial mathematics, investors use utility functions to compare the "joy" of earning money on an investment to the "pain" of losing money on the same investment. Suppose that an investor using...
-
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...
-
Two Amps are connected in series the first amplifier is an inverting amplifier and the second amplifier is a non-inverting amplifier, which of the following resistors produce a gain of -36? Amp1 (Ri...
-
For the supermarket example in Section 6.1, suppose that the Ïis are the same, but that each store has ;75. What is EL1? VI1?
-
Forte Inc. produces and sells theater set designs and costumes. The company began operations on January 1, 2016. The following transactions relate to securities acquired by Forte Inc., which has a...
-
Gannon Company establishes a $400 petty cash fund on September 9. On September 30, the fund shows $166 in cash along with receipts for the following expenditures: transportation-in, $32; postage...
-
Which of the following are NLP problems, and why? (a) Maximize profit = 3X1 + 5X2 + 99X3 Subject to X1 10 X2 5 X3 18 (b) Maximize cost = 25X1 + 30X2 + 8X1 X2 Subject to X1 8 X1 + X2 12 0.0005X1 ...
-
II. In the figure, a+b+c=170. Calculate p. b P a
-
How to develop a delta neutral strategy to speculate/arbitrage on volatility. Explain strategy and include all transactions. Cost of capital need to be considered, risk free rate and require at least...
-
Let (an)neN) CR be a sequence. (a) Show that lim supn an suPnen an. (b) Find a sequence (an) for which the inequality above is strict. (c) Show that lim infn an lim supn an. (d) Show that the...
-
Before you respond to this prompt, please (1) read the self-plagiarism section of the Course Information page and (2) review What is Plagiarism and Self Plagiarism What is Plagiarism and Self...
-
Why is there so much controversy around performance management? Why have some organizations stopped using performance management entirely? What are the positive reasons for using performance...
-
1. 1. What is the total percentage return for an investor who purchased a stock for $7.13, received $2.07in dividend payments, and sold the stock for $8.03? Please write answers as a percentage (e.g....
-
1. In detail, discuss at least 10 important biases related to finance and provide examples of how individuals are impacted by these biases financially. Be sure to talk about the important points. 2....
-
d P2 The vertical U-Section of a water distribution system seen on the drawing is considered. All hydraulic and dimensional data of the flow piece are known as given below. Calculate the Horizontal...
-
Using the theoretical sampling strategy, how many samples of size 4 (n = 4) can be drawn from a population of size: (a) N = 5? (b) N = 8? (c) N = 16? (d) N = 50?
-
Guarantee Oil Companys internal land department incurred costs of $150,000 in acquiring leases. Of the 1 million acres of prospects, only 450,000 acres were leased. a. How much, if any, of the...
-
Given the following data for Float Energy: a. Give the entries to record the abandonment of both Lease A and Lease B. b. Give the entries assuming instead that both Lease A and Lease B were proved,...
-
Gusher Oil Corporation obtained shooting rights only for \($10,000\) on 5,000 acres owned by Mr. Q and shooting rights coupled with an option to lease for \($12,000\) on 4,000 acres owned by Mr. S....
Study smarter with the SolutionInn App