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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:

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. Straightline 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.
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