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PR 26-1A Average rate of return method, net present value method, OBJ. 2, 3 and analysis for a service company The capital investment committee of

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PR 26-1A Average rate of return method, net present value method, OBJ. 2, 3 and analysis for a service company The capital investment committee of Touch of Eden Landscaping Company is considering two capital investments. The estimated income from operations and net cash flows from each investment are as follows: Year 1 2 3 Front-End Loader Income from Net Cash Operations Flow $23,000 $ 35,000 20,000 32,000 12,000 24,000 (2,000) 10,000 (2.000) 10,000 $51,000 $111.000 Greenhouse Fixtures Income from Net Cash Operations Flow $10,200 $ 22,200 10.200 22,200 10.200 22,200 10,200 22,200 10.200 22,200 $51,000 $111.000 4 5 Each project requires an investment of $60,000. 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. 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 2). Round present values to the nearest dollar. Problem 26-1A Question 1 a Average annual rate of return for both projects 34 % b Net Present Value for Front-End Loader Net Present Value for Greenhouse Fix

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