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 operating income and net cash flows from each investment are as follows: Front-End Loader Greenhouse Operating Net Cash Operating Net Cash Year Income Flow Income Flow $50,000 $163,000 $105,000 $261,000 2 50,000 163,000 80,000 220,000 3 50,000 163,000 40,000 155,000 4 50,000 163,000 18,000 106,000 50,000 163,000 7,000 73,000 Total $250,000 $815,000 $250,000 $815,000 Each project requires an investment of $500,000. 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.
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 operating income and net cash flows from each investment are as follows: Front-End Loader Greenhouse Operating Net Cash Operating Net Cash Year Income Flow Income Flow $50,000 $163,000 $105,000 $261,000 2 50,000 163,000 80,000 220,000 3 50,000 163,000 40,000 155,000 4 50,000 163,000 18,000 106,000 50,000 163,000 7,000 73,000 Total $250,000 $815,000 $250,000 $815,000 Each project requires an investment of $500,000. 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text: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 operating income and
net cash flows from each investment are as follows:
Front-End Loader
Greenhouse
Operating
Net Cash
Operating
Net Cash
Year
Income
Flow
Income
Flow
$50,000
$163,000
$105,000
$261,000
2
50,000
163,000
80,000
220,000
3
50,000
163,000
40,000
155,000
4
50,000
163,000
18,000
106,000
50,000
163,000
7,000
73,000
Total
$250,000
$815,000
$250,000
$815,000
Each project requires an investment of $500,000. 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.
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