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The capital investment committee of Estate Landscaping Company is considering two capital investments The estimated income from operations and net cash flows from each investment are as follows

The capital investment committee of Estate Landscaping Company is considering two capital investments. The estimated income from operations and net cash flows from each investment are as follows:

 

Greenhouse

Skid Loader

 

Income from

Net Cash

Income from

Net Cash

Year

Operations

Flow

Operations

Flow

1

$16,000

$ 30,000

$26,000

$ 40,000

2

16,000

30,000

21,000

35,000

3

16,000

30,000

16,000

30,000

4

16,000

30,000

11,000

25,000

5

16,000

30,000

6,000

20,000

 

$80,000

$150,000

$80,000

$150,000

Each project requires an investment of $70,000. 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. Round to one decimal place.

b. The net present value for each investment. Use the present value of $1 table appearing in this chapter.

2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.

Jul 01 2020 View more View Less

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