You have just become the new head of your department. Upon arriving to move into your new office, you find a memo on your desk. You have your first assignment. You have been asked to develop a proposal for a new piece of equipment that your superiors believe will make your area much more efficient and effective. There are three possible alternatives that you are to consider.

Having had an amazing Managerial Accounting class in your MBA program, you know exactly what to do. You will compare these three alternative purchases using the following and develop a table to compare them, highlighting the strongest in each measure. Then you will write a memo to the CFO with your recommendation, your rationale, a table showing the results, and an appendix that shows each computation in full detail.

a. Payback period

b. Net present value

c. Accounting rate of return

d. Internal rate of return (using average annual cash flows)

You are excited about this opportunity and cannot wait to get started, because you know that you will make a polished presentation and make a great impression!

Use a discount rate of 12%.

	Alternative A	Alternative B	Alternative C
Cost	$1,000,000	$1,250,000	$2,000,000
Setup Costs	$0	$50,000	$50,000
Training costs	$10,000	$25,000	$35,000
Annual maintence costs	$10,000	$15,000	$16,000
Anticipated annual savings	$125,000	$190,000	$225,000
Annual labor savings	$25,000	$0	$40,000
Expected useful life in years	8	9	7
Overhaul costs in year 4	$45,000	$50,000	$35,000