3 Ranking Investment Proposals: Payback Period, Accounting Rate of Return, and Net Present Value 4 Presented is information pertaining to the cash flows of three mutually exclusive investment proposals: 5 6 7 Initial investment 8 Cash flow from operations 9 Year 1 10 Year 2 11 Year 3 12 Disinvestment 13 Life (years) 14 15 Required: Proposal A $105,000 Proposal B $105,000 Proposal C $105,000 65,000 25,000 115,000 40,000 40,000 0 35,000 75,000 0 0 0 0 3 years 3 years 1 year a) Rank these investment proposals using the payback period, the accounting rate of return on initial investment, an the net present value criteria. Assume that the organization's cost of capital is 12% and 16 that all investments are in depreciable assets. Round calculations to four decimal places. 17 b) Explain the difference in the rankings. Which investment would you recommend? 18 19