Ranking Investment Proposals: Payback Period, Accounting Rate of Return, and Net Present Value (LO2, 3, 4) ay Presented is information pertaining to the cash flows of three mutually exclusive investment proposals:

Proposal X ProposaYl_ Proposal Z_

[nitralimvestimentscmenerusse tients caste ener resi $45,000 $45,000 $45,000 Cash flow from operations WISETO I wo Gee Se Bib aa Gruen Boner coor Ca ona 40,000 22,500 45,000 NASP 2D Grass 0d Site cent cheucerr Chal repcce nen oe eee 5,000 22,500 WiGala Cierra Mc ses Bier cicero cs auuteay elena a1 id Gaels 22,500 22,500 Disinvestimenitismm cysts sents aio teres tert ae) er 0 0 0 ILE EET) cece webiste Sb dere niin nets Noto CaO OIE 3 years 3 years 1 year Required

a. Rank these investment proposals using the payback period, the accounting rate of return on initial investment, and the net present value criteria. Assume that the organization’s cost of capital is 14 percent. Round calculations to four decimal places.

b. Explain the difference in rankings. Which investment would you recommend?

 LO.1