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Required: la. 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 X % Greenhouse X % 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

Required: la. 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 X % Greenhouse X % 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

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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**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 operating income and net cash flows from each investment are as follows: | Year | Front-End Loader Operating Income | Front-End Loader Net Cash Flow | Greenhouse Operating Income | Greenhouse Net Cash Flow | |------|-----------------------------------|-------------------------------|-----------------------------|---------------------------| | 1 | $46,200 | $145,000 | $97,000 | $232,000 | | 2 | 46,200 | 145,000 | 74,000 | 196,000 | | 3 | 46,200 | 145,000 | 37,000 | 138,000 | | 4 | 46,200 | 145,000 | 16,000 | 94,000 | | 5 | 46,200 | 145,000 | 7,000 | 65,000 | | **Total** | **$231,000** | **$725,000** | **$231,000** | **$725,000** | 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 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| This table displays the present value of $1 at various interest rates over three years, which is useful for calculating the net present value of future cash flows for investment appraisal.
Transcribed Image Text:**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 operating income and net cash flows from each investment are as follows: | Year | Front-End Loader Operating Income | Front-End Loader Net Cash Flow | Greenhouse Operating Income | Greenhouse Net Cash Flow | |------|-----------------------------------|-------------------------------|-----------------------------|---------------------------| | 1 | $46,200 | $145,000 | $97,000 | $232,000 | | 2 | 46,200 | 145,000 | 74,000 | 196,000 | | 3 | 46,200 | 145,000 | 37,000 | 138,000 | | 4 | 46,200 | 145,000 | 16,000 | 94,000 | | 5 | 46,200 | 145,000 | 7,000 | 65,000 | | **Total** | **$231,000** | **$725,000** | **$231,000** | **$725,000** | 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 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| This table displays the present value of $1 at various interest rates over three years, which is useful for calculating the net present value of future cash flows for investment appraisal.
**Educational Content: Present Value of $1 Table and Investment Calculations** **Present Value of $1:** This table provides the present value (PV) of $1 for different interest rates (from 4% to 15%) over the course of 10 years. The table lists the present value factors needed to discount future cash flows to present values. | Year | 4% | 6% | 8% | 10% | 12% | 15% | |------|------|------|------|------|------|------| | 1 | 0.962| 0.943| 0.926| 0.909| 0.893| 0.870| | 2 | 0.925| 0.890| 0.857| 0.826| 0.797| 0.756| | 3 | 0.889| 0.840| 0.793| 0.751| 0.712| 0.658| | 4 | 0.855| 0.792| 0.735| 0.683| 0.636| 0.572| | 5 | 0.822| 0.747| 0.681| 0.621| 0.567| 0.497| | 6 | 0.790| 0.705| 0.630| 0.564| 0.507| 0.432| | 7 | 0.760| 0.665| 0.583| 0.513| 0.452| 0.376| | 8 | 0.731| 0.627| 0.540| 0.467| 0.404| 0.327| | 9 | 0.703| 0.592| 0.500| 0.424| 0.361| 0.284| | 10 | 0.676| 0.558| 0.463| 0.386| 0.322| 0.247| **Required Tasks:** 1a. **Average Rate of Return:** - Compute the average rate of return for each investment option:
Transcribed Image Text:**Educational Content: Present Value of $1 Table and Investment Calculations** **Present Value of $1:** This table provides the present value (PV) of $1 for different interest rates (from 4% to 15%) over the course of 10 years. The table lists the present value factors needed to discount future cash flows to present values. | Year | 4% | 6% | 8% | 10% | 12% | 15% | |------|------|------|------|------|------|------| | 1 | 0.962| 0.943| 0.926| 0.909| 0.893| 0.870| | 2 | 0.925| 0.890| 0.857| 0.826| 0.797| 0.756| | 3 | 0.889| 0.840| 0.793| 0.751| 0.712| 0.658| | 4 | 0.855| 0.792| 0.735| 0.683| 0.636| 0.572| | 5 | 0.822| 0.747| 0.681| 0.621| 0.567| 0.497| | 6 | 0.790| 0.705| 0.630| 0.564| 0.507| 0.432| | 7 | 0.760| 0.665| 0.583| 0.513| 0.452| 0.376| | 8 | 0.731| 0.627| 0.540| 0.467| 0.404| 0.327| | 9 | 0.703| 0.592| 0.500| 0.424| 0.361| 0.284| | 10 | 0.676| 0.558| 0.463| 0.386| 0.322| 0.247| **Required Tasks:** 1a. **Average Rate of Return:** - Compute the average rate of return for each investment option:
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