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: Front-End Loader Greenhouse Operating Net Cash Operating Net Cash Year Income Flow Income Flow $50,000 $163,000 $105,000 $261,000 2 50,000 163,000 80,000 220,000 3 50,000 163,000 40,000 155,000 4 50,000 163,000 18,000 106,000 50,000 163,000 7,000 73,000 Total $250,000 $815,000 $250,000 $815,000 Each project requires an investment of $500,000. 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.

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: Front-End Loader Greenhouse Operating Net Cash Operating Net Cash Year Income Flow Income Flow $50,000 $163,000 $105,000 $261,000 2 50,000 163,000 80,000 220,000 3 50,000 163,000 40,000 155,000 4 50,000 163,000 18,000 106,000 50,000 163,000 7,000 73,000 Total $250,000 $815,000 $250,000 $815,000 Each project requires an investment of $500,000. 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.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 1PA: Average rate of return method, net present value method, and analysis for a service company The...

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