Investment Year Operating Income Net Cash Flow Proposal A: $680,000 1 $ 64,000 $ 200,000 2 64,000 3 64,000 4 24,000 5 24,000 200,000 200,000 160,000 160,000 $ 920,000 $ 90,000 90,000 70,000 $240,000 Proposal B: $320,000 1 $ 26,000 2 26,000 3 6,000 4 5 6,000 (44,000) $ 20,000 70,000 20,000 $340,000 Proposal C: $108,000 1 $ 55,000 2 $33,400 31,400 28,400 53,000 50,000 3 4 25,400 47,000 45,000 5 23,400 $142,000 $ 250,000 5 23,400 45,000 $142,000 $ 250,000 Proposal D: $400,000 1 $100,000 $ 180,000 2 100,000 180,000 3 80,000 160,000 4 20,000 100,000 5 80,000 $300,000 $700,000 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 0.570 0.833 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.659 0.579 0.792 0,683 0.636 0.572 0.452 0.747 0.621 0.567 0.492 0.402 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 0.279 0.627 0.467 0.400 0.327 0.233 2 4 5 6 7 8 Present Value or i at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 3 0.840 4 0.792 0.826 0.797 0.756 0.694 0.751 0.712 0.658 0.579 0.683 0.636 0.572 0.482 0.621 0.567 0.497 0.402 0.564 0.507 0.432 0.335 5 0.747 6 0.705 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 1. Compute the cash payback period for each of the four proposals. Cash Payback Period Proposal A 3 years 6 months Proposal B 4 years Proposal 2 years Proposal 2 years 3 months 2. Gving 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. It required, round your answers to one decimal place. Average Rate of Return Proposal A Proposal Proposal Proposal D 3. Using the following format, summarize the results of your computations in parts (1) and (2) by placing the calculated amounts in the first two columns on the left and indicate which proposals should be accepted for further analysis and which should be rejected. If required, round your answers to one decimal place. Proposal Cash Payback Period Average Rate of Return Accept or Reject A 3 years, 6 months Reject 4 years Reject 2 years Accept / 2 years, a months Accept D % 4. For the proposals accepted for further analysis in partea), compute the net present value. Use rate of 15% and the present value of 31 table above. Round to the nearest dollar Select the proposal accepted for further analysis Proposal Proposal Present value of net cash flow total Les amount to be invested Net present value 5. Compute the presenta un inox for each of the proposals in part (4). If required, round your answers to two decimal places Siect proposal to computer Present value index Proposal Proposal Present value index (rounded)
