Question
Initial investment in equipment Annual cash increase in operations: Year 1 Year 2 Year 3 Salvage value Estimated life Proposal A Proposal B Proposal
Initial investment in equipment Annual cash increase in operations: Year 1 Year 2 Year 3 Salvage value Estimated life Proposal A Proposal B Proposal C $90,000 $90,000 $90,000 80,000 45,000 90,000 10,000 45,000 0 45,000 45,000 0 0 0 0 3 yrs 3 yrs 1 yr The company uses straight-line depreciation for all capital assets. Required: a. Compute the payback period, net present value, and accrual accounting rate of return with initial investment, for each proposal. Use a required rate of return of 14%. b. Why? Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best?
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