1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place.Average Rate of ReturnFront-End LoaderGreenhousePresent value of net cash flow%1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. If required, use the minus sign toindicate a negative net present value.Amount to be invested%Front-End LoaderGreenhouseNet present value2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.The front-end loader has anet present value because cash flows occurprojects can be accepted, thewould be the more attractive.in time compared to the greenhouse. Thus, if only one of the two as follows:Year12345TotalYear12Investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are345678Front-End Loader910OperatingIncomeEach project requires an investment of $520,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes ofthe net present value analysis.Present Value of $1 at Compound Interest10%0.9090.826$52,00052,00052,00052,00052,000$260,0006%0.9430.8900.8400.7920.7470.7050.6650.6270.5920.5580.7510.6830.6210.5640.5130.467Net CashFlow0.4240.386$157,000157,000157,000157,000157,000$785,00012%0.8930.7970.7120.6360.5670.5070.4520.4040.3610.32215%0.8700.7560.6580.5720.4970.4320.3760.3270.2840.247GreenhouseOperatingIncome$109,00083,00042,00018,0008,000$260,00020%0.8330.6940.5790.4820.4020.3350.2790.2330.1940.162Net CashFlow$251,000212,000149,000102,00071,000$785,000

1. Average rate of return ARR = (Average annual profit / Initial investment) x 100. 2. Average…

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 Greenhouse 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value. Front-End Loader Greenhouse Present value of net cash flow Amount to be invested Net present value 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 net present value because cash flows occur( projects can be accepted, the would be the more attractive. in time compared to the greenhouse. Thus, if only one of the two

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 Greenhouse 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value. Front-End Loader Greenhouse Present value of net cash flow Amount to be invested Net present value 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 net present value because cash flows occur( projects can be accepted, the would be the more attractive. in time compared to the greenhouse. Thus, if only one of the two

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

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
Greenhouse
Present value of net cash flow
%
1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. If required, use the minus sign to
indicate a negative net present value.
Amount to be invested
%
Front-End Loader
Greenhouse
Net present value
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
net present value because cash flows occur
projects can be accepted, the
would be the more attractive.
in time compared to the greenhouse. Thus, if only one of the two

as follows:
Year
1
2
3
4
5
Total
Year
1
2
Investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are
3
4
5
6
7
8
Front-End Loader
9
10
Operating
Income
Each project requires an investment of $520,000. 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
10%
0.909
0.826
$52,000
52,000
52,000
52,000
52,000
$260,000
6%
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
0.751
0.683
0.621
0.564
0.513
0.467
Net Cash
Flow
0.424
0.386
$157,000
157,000
157,000
157,000
157,000
$785,000
12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
Greenhouse
Operating
Income
$109,000
83,000
42,000
18,000
8,000
$260,000
20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
Net Cash
Flow
$251,000
212,000
149,000
102,000
71,000
$785,000

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