Average Rate of Return Method, Net Present Value Method, and Analysis for a service company 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 Income from Net Cash Operatione Operatione 1 $59,400 199,000 $125.000 26.000 194,000 194,000 21.000 26.000 59,400 127,000 Income from Net Cash 2 59.400 5 1207.000 Each project requires an investment of $540,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis. Present Value of $1 at Compound Interest Year 0% 10% 12% . 0.943.900 0.89 0.626 . > 0.75 4 0.792 5 0:27 20 0.100.813 0.694 0.65 0.519 0.592 0:42 0:33 . 0:27 7 0.465 0,452 0.592 0.254 . 10 0.61 0.323 0.367 Required: la. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return Front Loader Grah 16. 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. Greenhouse Front-End Loader e presente 2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. two capital investments. The estimated income from operations and net cash flows from each investment are as follows: Front-End Loader Greenhouse Income from Net Cash Income from Year Operations Operations 1 5125.000 110.000 2 19,400 94,000 95.000 299,000 400 594,000 2.000 184.000 . 99,400 19.000 21.000 39,400 14.000 2.000 1297,000 70,000 9.297,000 Each project requires an investment of $540,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis. Present Value of $1 at Compound Year + 2 3 4 5 Interest 10412 204 0.900.900.000 0.870 0.833 . 0.826 0.792 0.756 0.64 0.75 0.712 6.57 0.93 0.663 0.636 0.52 0.47 0.62 0.367 0.42 0.402 0.705 OSA 0.50 0.432 0.665 0467 0:4040.227 0.33 6.592 AM 0.31 0.21 0.19 0.55 6 7 . 10 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 Leader 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 Presenteret cash Amount to be me 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 al Jnet present value because the cash flows occur in time come to the greenhouse. Thus, if only one of the two projects can be accepted, the would be the more attractive. two capital investments. The estimated income from operations and net cash flows from each investment are as follows: Front-End Loader Greenhouse Income from Net Cash Income from Operations Operations How 1 599,400 14.000 $125.000 5310.000 99,400 14.000 51,400 14.000 114.000 1.000 21.000 120.000 39,400 1.800 $257.000 Each project requires an investment of $540,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis, Present Value of $1 at Compound Interest 2 3 4 5 0:43 0.000 0.93 0.70 0.833 0.10 0.797 4.756 0.604 G. 51 0712 0.792 0.683 0.66 0.482 0. 0.36 0.4 0.402 0.05 4 O SO? 042 0335 0.665 0513 0452 0.375 0.279 0422 0.404 03 023) 0.592 035 024 0.19 6 7 . 10 Required: 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return Fruit Erdem 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 Leader Presente net cash flow Anunt to be invested 2. Prepare a brief report for the capital investment committee, advising it on the relative marits of the two investments The front bader has a net present value because the cash flows occur in time compared to the greenhouse. Thus, if only one of the two projects can be accepted, the would be the more attractive. Net two capital investments. The estimated income from operations and net cash flows from each investment are as follows: Front-End Loader Greenhouse Income from Net Cash Income from Operations Operations How 1 599,400 14.000 $125.000 5310.000 99,400 14.000 51,400 14.000 114.000 1.000 21.000 120.000 39,400 1.800 $257.000 Each project requires an investment of $540,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis, Present Value of $1 at Compound Interest 2 3 4 5 0:43 0.000 0.93 0.70 0.833 0.10 0.797 4.756 0.604 G. 51 0712 0.792 0.683 0.66 0.482 0. 0.36 0.4 0.402 0.05 4 O SO? 042 0335 0.665 0513 0452 0.375 0.279 0422 0.404 03 023) 0.592 035 024 0.19 6 7 . 10 Required: 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return Fruit Erdem 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 Presente net cash flow Amount to be invested 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 tantes der pt present value because the cash flows in time comprehoue greenhouse. Thus, if only one of the two projects can be accepted, the would be the more attractive. occur Net
