=+PR 26-6A Capital rationing decision involving four proposals objs. 2, 3, 5

✔ 5. Proposal B, 1.26 Income from Net Cash Investment Year Operations Flow Proposal D: $190,000 1 $ 22,000 $ 60,000 2 22,000 60,000 3 22,000 60,000 4 2,000 40,000 5 2,000 40,000 _________ __________ _________ _________

$ 70,000 $ 260,000 __________ __________ The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.

Instructions 1. Compute the cash payback period for each of the four proposals.

2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place.