Question
In: Finance
The capital investment committee of Hopewell Company is currently considering two investments. The estimated income from...
The capital investment committee of Hopewell Company is currently considering two investments. The estimated income from operations and net cash flows expected from each investment
are as follows:
Truck Equipment
Income from Net Cash Income from Net Cash
Year Operations Flow Operations Flow
1 $ 6,000 $ 22,000 $13,000 $ 29,000
2 9,000 25,000 10,000 26,000
3 10,000 26,000 8,000 24,000
4 8,000 24,000 8,000 24,000
5 11,000 27,000 3,000 19,000
$44,000 $124,000 $42,000 $122,000
Each investment requires $80,000. Straight-line depreciation will be used, and no residual
value is expected. The committee has selected a rate of 15% for purposes of the net present
value analysis.
Instructions
Compute the following:
The average rate of return for each investment.
The net present value for each investment. Use the present value of $1 table appearing in this chapter (Exhibit 2).
Why is the net present value of the equipment greater than the truck, even though its average rate of return is less?
Prepare a summary for the capital investment committee, advising it on the relative merits of the two investments
Solutions
jeff jeffy answered 2 years agoRelated Solutions
The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated income...
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:
Front-End Loader
Greenhouse
Year
Income from
Operations
Net Cash
Flow
Income from
Operations
Net Cash
Flow
1
$63,000
$205,000
$132,000
$328,000
2
63,000
205,000
101,000
277,000
3
63,000
205,000
50,000
195,000
4
63,000
205,000
22,000
133,000
5
63,000
205,000
10,000
92,000
Total
$315,000
$1,025,000
$315,000
$1,025,000
Each project requires an investment of...
The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated income...
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:
Front-End Loader
Greenhouse
Year
Income from
Operations
Net Cash
Flow
Income from
Operations
Net Cash
Flow
1
$52,200
$164,000
$110,000
$262,000
2
52,200
164,000
84,000
221,000
3
52,200
164,000
42,000
156,000
4
52,200
164,000
18,000
107,000
5
52,200
164,000
7,000
74,000
Total
$261,000
$820,000
$261,000
$820,000
Each project requires an investment of...
The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated income...
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:
Front-End Loader
Greenhouse
Year
Income from
Operations
Net Cash
Flow
Income from
Operations
Net Cash
Flow
1
$35,700
$116,000
$75,000
$186,000
2
35,700
116,000
57,000
157,000
3
35,700
116,000
29,000
110,000
4
35,700
116,000
12,000
75,000
5
35,700
116,000
5,500
52,000
Total
$178,500
$580,000
$178,500
$580,000
Each project requires an investment of...
The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated income...
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:
Front-End Loader
Greenhouse
Year
Income from
Operations
Net Cash
Flow
Income from
Operations
Net Cash
Flow
1
$50,000
$161,000
$105,000
$258,000
2
50,000
161,000
80,000
217,000
3
50,000
161,000
40,000
153,000
4
50,000
161,000
18,000
105,000
5
50,000
161,000
7,000
72,000
Total
$250,000
$805,000
$250,000
$805,000
Each project requires an investment of...
The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated income...
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:
Front-End Loader
Greenhouse
Year
Income from
Operations
Net Cash
Flow
Income from
Operations
Net Cash
Flow
1
$41,800
$132,000
$88,000
$211,000
2
41,800
132,000
67,000
178,000
3
41,800
132,000
33,000
125,000
4
41,800
132,000
15,000
86,000
5
41,800
132,000
6,000
60,000
Total
$209,000
$660,000
$209,000
$660,000
Each project requires an investment of...
The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated income...
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:
Front-End Loader
Greenhouse
Year
Income from
Operations
Net Cash
Flow
Income from
Operations
Net Cash
Flow
1
$46,200
$150,000
$97,000
$240,000
2
46,200
150,000
74,000
203,000
3
46,200
150,000
37,000
143,000
4
46,200
150,000
16,000
98,000
5
46,200
150,000
7,000
66,000
Total
$231,000
$750,000
$231,000
$750,000
Each project requires an investment of...
The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated income...
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:
Front-End Loader
Greenhouse
Year
Income from
Operations
Net Cash
Flow
Income from
Operations
Net Cash
Flow
1
$56,700
$185,000
$119,000
$296,000
2
56,700
185,000
91,000
250,000
3
56,700
185,000
45,000
176,000
4
56,700
185,000
20,000
120,000
5
56,700
185,000
8,500
83,000
Total
$283,500
$925,000
$283,500
$925,000
Each project requires an investment of...
he capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating...
he 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
Year
Operating
Income
Net Cash
Flow
Operating
Income
Net Cash
Flow
1
$36,000
$114,000
$76,000
$182,000
2
36,000
114,000
58,000
154,000
3
36,000
114,000
29,000
108,000
4
36,000
114,000
13,000
74,000
5
36,000
114,000
4,000
52,000
Total
$180,000
$570,000
$180,000
$570,000
Each project requires an investment of $400,000. Straight-line
depreciation...
The capital investment committee of Cross Continent Trucking Inc. is considering two capital investments. The estimated...
The capital investment committee of Cross Continent Trucking
Inc. is considering two capital investments. The estimated income
from operations and net cash flows from each investment are as
follows:
Warehouse
Tracking Technology
Year
Income from
Operations
Net Cash
Flow
Income from
Operations
Net Cash
Flow
1
$50,400
$163,000
$106,000
$261,000
2
50,400
163,000
81,000
220,000
3
50,400
163,000
40,000
155,000
4
50,400
163,000
18,000
106,000
5
50,400
163,000
7,000
73,000
Total
$252,000
$815,000
$252,000
$815,000
Each project requires an investment...
Please show work :) The capital investment committee of Arches Landscaping Company is considering two capital...
Please show work :)
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:
Front-End Loader
Greenhouse
Year
Income from
Operations
Net Cash
Flow
Income from
Operations
Net Cash
Flow
1
$62,000
$198,000
$130,000
$317,000
2
62,000
198,000
99,000
267,000
3
62,000
198,000
50,000
188,000
4
62,000
198,000
22,000
129,000
5
62,000
198,000
9,000
89,000
Total
$310,000
$990,000
$310,000
$990,000
Each project...
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