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 GreenhouseYearOperatingIncomeNet CashFlow OperatingIncomeNet CashFlow1$44,000 $142,000 $92,000 $227,000 244,000 142,000 70,000 192,000 344,000 142,000 35,000 135,000 444,000 142,000 15,000 92,000 544,000 142,000 8,000 64,000 Total$220,000 $710,000 $220,000 $710,000 Each project requires an investment of $400,000. 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 InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83320.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.48250.7470.6210.5670.4970.40260.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.23390.5920.4240.3610.2840.194100.5580.3860.3220.2470.162Required:1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of ReturnFront-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 LoaderGreenhousePresent value of net cash flow$$Amount to be invested Net present value$$

1 (a) Compute the average rate of return for each investment: Greenhouse: Avg. rate of return = Avg.…

Answered: 1a. Compute the average rate of return…

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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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
Year	Operating Income	Net Cash Flow		Operating Income	Net Cash Flow
1	$44,000		$142,000			$92,000	$227,000
2	44,000		142,000			70,000	192,000
3	44,000		142,000			35,000	135,000
4	44,000		142,000			15,000	92,000
5	44,000		142,000			8,000	64,000
Total	$220,000		$710,000			$220,000	$710,000

Each project requires an investment of $400,000. 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
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:

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	$	$

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