PR26-1A

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:

Front End Loader Green house fixtures

Year Income From Operations Net Cash flow Income from Operations Net Cash flow

1 23000 35000 10200 22200

2 20000 32000 10200 22000

312000 24000 10200 22000

4 -2000 1000010200 22200

5 -2000 10000 10200222000

51000 111000 51000 111000

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.

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