Capital Rationing Decision for a Service Company Involving Four Proposals Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows: Investment Year Income from Operations Net Cash Flow Proposal A: $450,000 1 $ 30,000 $120,000 2 30,000 120,000 3 20,000 110,000 4 10,000 100,000 5 (30,000) 60,000 $ 60,000 $510,000 Proposal B: $200,000 1 $ 60,000 $100,000 2 40,000 80,000 3 20,000 60,000 4 (10,000) 30,000 5 (20,000) 20,000 $ 90,000 $290,000 Proposal C: $320,000 1 $ 36,000 $100,000 2 26,000 90,000 3 26,000 90,000 4 16,000 80,000 5 16,000 80,000 $120,000 $440,000 Proposal D: $540,000 1 $ 92,000 $200,000 2 72,000 180,000 3 52,000 160,000 4 12,000 120,000 5 (8,000) 100,000 $220,000 $760,000 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. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162