AVERAGE RATE OF RETURN METHOD, NET PRESENT VALUE METHOD, and Analysis for a service company.

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 operating income and net cash flows from each investment are as follows: Front-End Loader Operating Net Cash Income Flow Greenhouse Operating Net Cash Income Flow Year 1 $49,400 $104,000 79,000 $242,000 204,000 2 49,400 49,400 3 $151,000 151,000 151,000 151,000 151,000 40,000 143,000 4 49,400 5 49,400 $247,000 17,000 7,000 $247,000 98,000 68,000 $755,000 Total $755.000 Each project requires an investment of $520,000. 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. Year 1 2 Present Value of $1 at Compound Interest 10% 12% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.630 0.572 0.482 0.747 0.621 0.567 0.497 0.402 3 5 6 0.705 0.564 0.507 0.432 0.335 0.279 7 0.665 0.513 0.452 0.376 Check My Work Email Instructor Save and Exit Submit Assignment for Grading Book Show Me How Calculator Print Hom Present Value of $1 at Compound Interest 69 10% 12% 15% 20% Year 1 0.943 0.909 0.893 0.833 0.870 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.712 0.658 0.579 0.751 0.683 4 0.792 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 0.335 6 0.705 0.564 0.507 0.432 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.424 0.361 0.284 0.194 0.592 0.558 10 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 $1 table above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value Front-End Loader Greenhouse Present value of net cash flow Amount to be invested Net present value Required: la 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 1 table above. If required, round to the nearest dollar. If required, use the minus sign 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 smaller net present value because cash flows occur later In time compared to the greenhouse. Thus, if only one of the two projects can be accepted, the greenhouse would be the more attractive Crack My Won 1a Divide the estimated average annual income by the average investment 11. For each investment multiply the present value factor for each year (Exhibit 2) by that are not cash flow. Subtract the amount to be invested from the total prosent value of the not cash flow. Which investment offers the more favorable net present value? 2. Consider when cash flows are received and the time value of money