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Problems: Series A 1. A. 30.0% Obj. 2,3 PR 25-1A Average rate of return method,...

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Accounting

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Problems: Series A 1. A. 30.0% Obj. 2,3 PR 25-1A 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 income from operations and net cash flows from each investment are as follows: SHOW ME HOW EXCEL TEMPLATE Year Greenhouse Income from Net Cash Operations Flow $11,250 $ 26,250 11,250 26,250 11.250 26,250 26,250 11,250 26,250 $56,250 $131,250 Front-End Loader Income from Net Cash Operations Flow $25,000 $40,000 20,000 35,000 7.000 22,000 3,000 18,000 1,250 16,250 $56,250 $131,250 2 3 11,250 Total 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. Instructions 1. Compute the following: A. The average rate of return for each investment. B. The net present value for each investment. Use the present value of $1 table appearing in this chapter (Exhibit 2). (Round present values to the nearest dollar.) Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. 2

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