The capital investment committee of Nature's Portrait Landscaping Company is considering two capital investments. The estimated income from operations and net cash flows from each investment are as follows: Greenhouse Fixtures Front-End Loader Income from Year Operations Net Cash Flow Income from Operations Net Cash Flow 1 $25,000 $ 40,000 $11,250 $ 26,250 2 20,000 35,000 11,250 26,250 3 7,000 22,000 11,250 26,250 4 3,000 18,000 11,250 26,250 5 1,250 16,250 11,250 26,250 Total $56,250 $131,250 $56,250 $131,250 Each project requires an investment of $75,000. 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 eBook Show Me How Print Item 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. Greenhouse Front End Loader Average Rate of Return X % X % 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. Front End Loader Greenhouse Fixtures 1a. Compute the average rate of return for each investment. Greenhouse Front End Loader Average Rate of Return % % 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. Front End Loader Greenhouse Fixtures Present value of net cash flow total Less amount to be invested Net present value 2. The front end loader has a larger net present value because larger cash flows occur earlier in time compared to the greenhouse fixtures. Thus, if only one of the two projects can be accepted, the front end loader would be the more attractive. Feedback Check My Work 1a. Divide the estimated average annual income by the average investment. at each flow Subtract the amount to be invested from the total