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

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The capital investment committee of Nature ` s Beauty Landscaping Company is considering two capital investments. The estimate income from operations and net cash flows from each investment are as follows.

(see chart in attached file)

Each project requires an investment of $80,000. Straight-line depreciation will be used, and, no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis.

INSTRUCTIONS:
1. Compute the following:
A. The average rate of return for each investment.
B. The net present value for each investment. Use the present value of $1.

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

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Solution Summary

Discussion shows computations and interpretation for report

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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