2 4 Front-End Loader Greenhouse Fixtures Income from Net Cash Income from Net Cash Year Operations Flow Operations Flow 1 $25,000 $ 40,000 $11,250 $ 26,250 20,000 35,000 11,250 26,250 3 7,000 22,000 11,250 26,250 3,000 18,000 11,250 26,250 1,250 16,250 11,250 26,250 $56,250 $131,250 $56,250 $131,250 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. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 5 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 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. Average Rate of Return Greenhouse 30 % Front End Loader 30 % 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required round to the nearest dollar. Front End Loader Greenhouse Present value of net cash flow total $ 99,940.7 x 19,631 X Less amount to be invested 75,000 75,000 Net present value 24,940.7 x 24,941 x 2. The front end loader has a larger net present value because larger cash flows occur earlier in time compared to the greenhouse fixtures. Thus, if only one of the two projects can be accepted, the front end loader would be the more attractive. Feedback