The capital investment committee of Arches 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					Greenhouse
Year	Income from Operations		Net Cash Flow			Income from Operations		Net Cash Flow
1	$39,900		$124,000			$84,000		$198,000
2	39,900		124,000			64,000		167,000
3	39,900		124,000			32,000		118,000
4	39,900		124,000			14,000		81,000
5	39,900		124,000			5,500		56,000
Total	$199,500		$620,000			$199,500		$620,000

Each project requires an investment of $420,000. 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
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
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
Front-End Loader	fill in the blank 1%
Greenhouse	fill in the blank 2%

1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value.

	Front-End Loader	Greenhouse
Present value of net cash flow	$fill in the blank 3	$fill in the blank 4
Amount to be invested	$fill in the blank 5	$fill in the blank 6
Net present value	$fill in the blank7	$fill in the blank 8

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 or larger

net present value because cash flows occur

earlier or later

in time compared to the greenhouse. Thus, if only one of the two projects can be accepted, the

front-end loader or greenhouse

would be the more attractive.