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Obj. 2, 3 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 Nes Ce

Obj. 2, 3 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 Nes Ce

FINANCIAL ACCOUNTING
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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PR 11-1A Average rate of return method, net present value method, and analysis for a service company Obj. 2, 3 The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated income from operations and SHOW MI NO net cash flows from each investment are as follows: tart TIMPLATE Front-End Loader Greenhouse Income from Operations Net Cash Flow Income from Operations Net Cash Flow Year $ 40,000 35,000 22,000 18,000 $ 26,250 $25.000 20.000 7,000 3,000 $11,250 11,250 11,250 26,250 26,250 26,250 4 11,250 11,250 $56,250 26,250 $131,250 1,250 16,250 $131,250 Total $56.250 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. Instructions 1. Compute the following: A. The average rate of return for each investment. Answer B. The net present value for each investment. Use the present value of $1 table appearing in this chapter (Exhibit 2). (Round present values to the nearest dollar:) Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.
Transcribed Image Text:PR 11-1A Average rate of return method, net present value method, and analysis for a service company Obj. 2, 3 The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated income from operations and SHOW MI NO net cash flows from each investment are as follows: tart TIMPLATE Front-End Loader Greenhouse Income from Operations Net Cash Flow Income from Operations Net Cash Flow Year $ 40,000 35,000 22,000 18,000 $ 26,250 $25.000 20.000 7,000 3,000 $11,250 11,250 11,250 26,250 26,250 26,250 4 11,250 11,250 $56,250 26,250 $131,250 1,250 16,250 $131,250 Total $56.250 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. Instructions 1. Compute the following: A. The average rate of return for each investment. Answer B. The net present value for each investment. Use the present value of $1 table appearing in this chapter (Exhibit 2). (Round present values to the nearest dollar:) Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.
Answers are entered in the cells with gray backgrounds. Cells with non-gray backgrounds are protected and cannot be edited. An asterisk (*) will appear to the right of an incorrect entry, or above and below formulas. The essay answer will not be graded. 1. A. Average annual rate of return for both projects: В. Net Present Value Analysis Present Present Value of Value of Net Cash Flow Net Cash Flow $1 at 12% Front-End Loader Greenhouse Front-End Loader Greenhouse Year 1 Year 2 Year 3 Year 4 Year 5 Total Amount to be invested Net present value 2. [Key essay answer here]
Transcribed Image Text:Answers are entered in the cells with gray backgrounds. Cells with non-gray backgrounds are protected and cannot be edited. An asterisk (*) will appear to the right of an incorrect entry, or above and below formulas. The essay answer will not be graded. 1. A. Average annual rate of return for both projects: В. Net Present Value Analysis Present Present Value of Value of Net Cash Flow Net Cash Flow $1 at 12% Front-End Loader Greenhouse Front-End Loader Greenhouse Year 1 Year 2 Year 3 Year 4 Year 5 Total Amount to be invested Net present value 2. [Key essay answer here]
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