The capital investment committee of Hampton 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 $64,000. 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.

1. Compute the following:

a. The average rate of return for each investment. Round to one decimal place.
b. The net present value for each investment. Use the present value of $1 table appearing in this chapter (Exhibit 1).

2.  Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.

Exhibit 1:

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Skid Loader Greenhouse Income from Operations $ 7,200 Net Cash Flow Income from Operations $2,200 Net Cash Flow Year $ 35,000 $ 20,000 20,000 25,000 12,200 7,200 7,200 20,000 7,200 20,000 4 (2,800) 10,000 20,000 7,200 (2,800) 10,000 20,000 5 7,200 $36,000 $100,000 $36,000 $100,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 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 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 0.376 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