Swanson Corporation is evaluating five different capital expenditure proposals. The company’s cutoff rate for net present value analysis is 12%. A 15% salvage value is expected from each of the investments. Information on the five proposals is as follows:

Required

a. Compute the excess present value index for each of the five proposals.

b. Compute the average rate of return for each of the five proposals.

c. Assume that Swanson will commit no more than \($200,000\) to new capital expenditure proposals. Using the excess present value index, which proposals would be accepted? Using the average rate of return, which proposals would be accepted?

Transcribed Image Text:

Required Investment Net Present Average Annual Value Net Income from Investment Proposal A. ABCDE E. $ 50,000 80,000 $ 8,996 $ 9,100 5,812 12,000 110,000 27,034 18,300 150,000 7,544 21,500 72,000 15,822 13,960