PR 11-1A Average rate of return method, net present value method, andanalysis for a service companyObj. 2, 3 The capital investment committee of Arches Landscaping Company isconsidering two capital investments. The estimated income from operations andSHOW MI NOnet cash flows from each investment are as follows:tart TIMPLATEFront-End LoaderGreenhouseIncome fromOperationsNet CashFlowIncome fromOperationsNet CashFlowYear$ 40,00035,00022,00018,000$ 26,250$25.00020.0007,0003,000$11,25011,25011,25026,25026,25026,250411,25011,250$56,25026,250$131,2501,25016,250$131,250Total$56.250Each project requires an investment of $75,000. Straight-line depreciation will be used, and noresidual value is expected. The committee has selected a rate of 12% for purposes of the netpresent value analysis.Instructions1. Compute the following:A. The average rate of return for each investment.AnswerB. The net present value for each investment. Use the present value of $1 table appearing in thischapter (Exhibit 2). (Round present values to the nearest dollar:)Prepare a brief report for the capital investment committee, advising it on the relativemerits 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 AnalysisPresentPresent Value ofValue ofNet Cash FlowNet Cash Flow$1 at 12%Front-End LoaderGreenhouseFront-End LoaderGreenhouseYear 1Year 2Year 3Year 4Year 5TotalAmount to be investedNet present value2.[Key essay answer here]

The question is based on the concept of Financial Management. The net present value of the front-end loader is lower than that of the greenhouse since cash flows occur later in time. As a result, if only one of the two projects is approved, the greenhouse will be the more appealing option.

Business

Accounting

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

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 1 $55,800 $172,000 $117,000 $275,000 2 55,800 172,000 89,000 232,000 55,800 172,000 45,000 163,000 4 55,800 172,000 20,000 112,000 5 55,800 172,000 8,000 78,000 Total $279,000 $860,000 $279,000 $860,000 Each project requires an investment of $620,000. 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 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 0.747 0.621…
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A techniques-Decision among mutually exclusive investments Pound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flows Initial investment (CF) Project A $60,000 Project B $100,000 Project C $90,000 Cash inflows (CF), t=1 to 5 $20,000 $31,500 $32,000 a. Calculate the payback period for each project. b. Calculate the net present value (NPV) of each project, assuming that the firm has a cost of capital equal to 12%. c. Calculate the internal rate of return (IRR) for each project. d. Indicate which project you would recommend. a. The payback period of project A is years. (Round to two decimal places.) % [7%
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Net Present Value Method, Present Value Index, and Analysis for a service company Continental Railroad Company is evaluating three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows: MaintenanceEquipment RampFacilities ComputerNetwork Amount to be invested $591,053 $351,873 $159,991 Annual net cash flows: Year 1 251,000 171,000 103,000 Year 2 233,000 154,000 71,000 Year 3 213,000 137,000 52,000 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: 1. Assuming that the desired rate…