Parrott's Manufacturer produces plastic containers used to package a variety of liquid consum products (such as fabric softener, cleaners, shampoo, hair spray, and liquid soap). The containers are manufactured on a job-order basis to customer specifications. Parrott's has received four proposals for capital investment projects. Your job is to evaluate these proposals and rank them in the order in which they should be funded. Begin your anayisis by computing the average rate of return and payback period for each proposal. 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 not met, these projects need to be eliminated. The net present value (NPV) method, present value indexes, and internal rate of retum (IRR) are used to rank the remaining proposals. NOTE: The rate for NPV is different than the Average Rate of Return rate. When all calculations are completed rank the remaining projects based on both their profitability quantitative analysis) and overall merit to the corporation (qualitative analysis). Proposal Investment Year Income from Operations Net Cash Flow 850,000.00 1 2 65,000.00 64,000.00 58,000.00 30,000.00 23,000.00 240,000.00 235,000.00 234,000.00 228,000.00 200,000.00 193,000.00 1,090,000.00 4 5 B 155,000.00 30,000.00 74,000.00 8,000.00 (1.000.00) (11.000.00) 100,000.00 61,000.00 105,000.00 39,000.00 30,000.00 20.000.00 255,000.00 4 5 275,500.00 1 2 19.000.00 19,000.00 19,000.00 15,000.00 16.250.00) 65.750.00 74,100.00 74,100.00 74,100.00 70,100.00 48,850.00 341.250.00 D 285,000.00 1 2 3 4 5 58,000.00 38,500.00 24,000.00 22.000.00 21,000.00 163,500.00 115,000.00 95,500.00 81,000.00 79,000.00 78,000.00 448,500.00 Project A This proposal requests funds to automated manufacturing equipment that will reduce the cycle time from receipt of a customer order to delivery of that order. Parrott's Manufacturing cycle time is currently seven days. The automated equipment will reduce that time to four days while saving costs due to the elimination of five jobs. It will also make Parrott's more competitive; the company's major competitor currently has a cycle time of five days. Project B This proposal requests funds to equipment to make stick-on labels that are applied to the plastic containers. Currently, all stick-on labels are ordered from another compay. This supplier has not proven very reliable in meeting delivery deadlines Project C This proposal requests funds to purchase hardware and software that will allow the accounting department of process payroll in-house. Paychecks are currently processed by an outside payroll service company. The annual increase in net income and cash flows will result from cost savings if the payroll function is no longer contracted to an outside company. Project D This proposal requests funds for new manufacturing equipment. This equipment will allow Parrott's Manufacturing to make containers as large as ten gallons. Currently, Parrott's cannot make containers that are larger than three gallons. Instructions: 1. Compute the cash payback period for each of the four proposals. 2. Compute the average rate of return for each of the four proposals. Round to the one decimal place. 3. Using the following format, summarize the results of your computations in parts 1 and 2 By placing a check mark in the appropriate column at the right, indicate which proposals should be accepted for further analysis and which should be rejected. Proposal Cash Payback Avg Rate of Accept for Period Return further analysis Reject 4. For the proposals accepted for further analysis in part 3, compute the net present value using the chart. Use a rate of 10% and the present value of $1 in the handout out chart. Round to the nearest dollar. 5. Compute the present value index for each of the proposals in part 4. Round to two decimal places. 6. Calculate the IRR number and locate to the nearest percentage using the hand-out chart. Round to two decimals. 7. Based upon the analyses, rate the remaining projects and discuss the reasons considering both the quantitative and qualitative merits of the project. Your summary of the projects must be longer than one to two sentences. You are required to give some thought to your choices and justify your choices