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 $ 40,000 $11,250 $ 26,250 1 $25,000 2 20,000 35,000 11,250 26,250 3 7,000 22,000 11,250 26,250 4 3,000 18,000 11,250 26,250 5 1,250 16,250 11,250 26,250 Total $56,250 $131,250 $56,250 $131,250 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. 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 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 0.279 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return Greenhouse Front-End Loader 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. Front-End Loader Greenhouse Present value of net cash flow Amount to be invested Net present value
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 $ 40,000 $11,250 $ 26,250 1 $25,000 2 20,000 35,000 11,250 26,250 3 7,000 22,000 11,250 26,250 4 3,000 18,000 11,250 26,250 5 1,250 16,250 11,250 26,250 Total $56,250 $131,250 $56,250 $131,250 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. 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 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 0.279 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return Greenhouse Front-End Loader 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. Front-End Loader Greenhouse Present value of net cash flow Amount to be invested Net present value
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![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
$ 40,000
$11,250
$ 26,250
1
$25,000
2
20,000
35,000
11,250
26,250
3
7,000
22,000
11,250
26,250
4
3,000
18,000
11,250
26,250
5
1,250
16,250
11,250
26,250
Total
$56,250
$131,250
$56,250
$131,250
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.
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
0.747
0.621
0.567
0.497
0.402
6
0.705
0.564
0.507
0.432
0.335
0.665
0.513
0.452
0.376
0.279
0.627
0.467
0.404
0.327
0.233
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162
Required:
1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place.
Average Rate of Return
Greenhouse
Front-End Loader
1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar.
Front-End Loader
Greenhouse
Present value of net cash flow
Amount to be invested
Net present value](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F37e7fa32-40fe-489e-acba-2b0ca2a9458c%2F88858994-85b2-47ab-9592-55432836c530%2Fi5att7.png&w=3840&q=75)
Transcribed Image Text: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
$ 40,000
$11,250
$ 26,250
1
$25,000
2
20,000
35,000
11,250
26,250
3
7,000
22,000
11,250
26,250
4
3,000
18,000
11,250
26,250
5
1,250
16,250
11,250
26,250
Total
$56,250
$131,250
$56,250
$131,250
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.
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
0.747
0.621
0.567
0.497
0.402
6
0.705
0.564
0.507
0.432
0.335
0.665
0.513
0.452
0.376
0.279
0.627
0.467
0.404
0.327
0.233
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162
Required:
1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place.
Average Rate of Return
Greenhouse
Front-End Loader
1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar.
Front-End Loader
Greenhouse
Present value of net cash flow
Amount to be invested
Net present value
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