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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 Operating Income Net Cash Flow $146,000 Net Cash Flow Year Income 1 $45,900 $96,000 $234,000 2 45,900 146,000 73,000 197,000 3 45,900 146,000 37,000 139,000 45,900 146,000 16,000 95,000 5 45,900 146,000 7,500 65,000 Total $229,500 $730,000 $229,500 $730,000 Each project requires an investment of $540,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% 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 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 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 0.558 0.386 0.322 0.247 0.162 4 4 5 6 7 8 9 10
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. Greenhouse Front-End Loader Present value of net cash flow Amount to be invested Net present value $ 2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. The front-end loader has a net present value because cash flows occur in time compared to the greenhouse. Thus, if only one of the two projects can be accepted, the the more attractive. would be