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

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