Average rate of Return Method, trust 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 not cash flow from each investment are as follows: Front-End Loader Greenhouse Operating Net Cash Operating Net Cash Year Income Flow Income Flow 1 $65,100 $197.000 $137.000 $315,000 2 65,100 197,000 104,000 266,000 3 65,100 197,000 $2,000 187,000 65,100 197,000 23,000 128,000 5 65,100 197,000 9,500 89,000 Total $325,500 $965,000 $325,500 $985,000 4 Each project requires an investment of $620,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected state of 15% for purposes of the net present value analysis Present Value of $1 at Compound Interest 69 10% 12% 15% 20% Year 1 0.909 0.833 0.943 0.090 0.893 0.797 0.870 0.756 0.694 2 0.826 0.751 3 0.840 0.712 0.579 0.658 0.572 4 0.792 0.636 0.567 0.683 0.621 0.564 5 0.482 0.402 0.335 0.747 0.497 6 0.507 0.432 0.705 0.665 0.279 7 0.513 0,452 0.376 8 0.627 0.467 0.404 0.327 0.233 101 2 0.890 0.826 0.756 0.594 3 0.797 0.72 0.840 0.751 0.792 0.636 0.683 0.621 0.650 0.572 0.497 5 0.742 0.579 0.482 0.402 0.335 0.567 0.507 6 0.564 0.705 0.565 7 0,452 0.513 0.467 0.432 0.376 0.327 0.279 8 0.622 0.233 9 0.404 0.361 0.592 0.424 0.284 10 0.558 0.194 0.162 0.386 0.322 0.247 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 5 Net present value the two investments in time compared to the greenhouse. Thus, only 2. Prepare a brief report for the capital investment committee, advising it on the relative merits The front-end loader has a net present value because cash flows occur one of the two projects can be accepted, the would be the more attractive. NE