Answer Happy

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:
Each project requires an investment of $420,000. 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.
Required:
1a. Compute the average rate of return
for each investment. If required, round your answer to
one decimal place.
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.
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
smallerlarger
net present value because cash flows occur
earlierlater
in time compared to the greenhouse. Thus, if only one of
the two projects can be accepted, the
front-end loadergreenhouse
would be the more attractive.