Micro Technology is considering two alternative proposals for modernizing its production facilities. To provide a basis for selection, the cost accounting department has developed the following data regarding the expected annual operating results for the two proposals:

	Proposal 1			Proposal 2
Required investment in equipment	$	360,000		$	350,000
Estimated service life of equipment		8	years		7	years
Estimated salvage value	$	0		$	14,000
Estimated annual cost savings (net cash flow)		75,000			76,000
Depreciation on equipment (straight-line basis)		45,000			48,000
Estimated increase in annual net income		30,000			28,000

Instructions

a.

For each proposal, compute the following. Assume discounted at an annual rate of 12 percent. Use Exhibits 26-3 and 26-4 where necessary. (Round your "PV factors" to 3 decimal places, payback period to the nearest tenth of a year and the return on average investment to the nearest tenth of a percent. Omit the "$" & "%" signs in your response.)

		Proposal 1		Proposal 2
(1)	Payback period		years		years
(2)	Return on average investment		%		%
(3)	Net present value	$		$

b.

On the basis of your analysis in part a, state which proposal you would recommend.

	Proposal 1
	Proposal 2