Payback Period Proposal A:year, -month cash payback period Cumulative Net Cash Flows Net Cash Flow Year and Months Year 1 Year 2 Year 3 Year 4 Ely-year, -month cash payback period Proposal B: Cumulative Net Cash Flows Net Cash Flow Year and Months Year 1 Year 2 Year 3 Year 4 -month cash payback period -year, Proposal C: Net Cash Flow Cumulative Net Cash Flows Year and Months Year 1 Year 2 Year 3 Year 4 Proposal D -month cash payback period year, Net Cash Flow Cumulative Net Cash Flows Year and Months a Pr. 26-6A C A B -month cash payback perlod Proposal D: year Cumulative Net Cash Flows Net Cash Flow Year and Months Year 1 Year 2 Year 3 Year 4 Average Rate of Return 2. Proposal A Proposal B Proposal C Proposal D: 59 2. Average Rate of Return 52 3 Proposal A 4 Proposal B: Proposal C: Proposal D 3. Accept for Further Analysis? Cash Payback Period Years Average Rate of Returrn Proposal Months Net Present Value and Present Value Index Present Value of Net Cash Flow Present Value of $1 at 12% Net Cash Flow Year 1 Year 2 Year 3 Year 4 Year 5 Total Amount to be invested Net present value Present value index Present Value of $1 at 12% Present Value of Net Cash Flow Net Cash Flow Year 1 Year 2 Year 3 Year 4 Year 5 Total Amount to be investecd Not prosent value Present value index 28 29 6., 7. 30 31 32 Based on net present value calculated in Part 4, the proposals shoukd be ranked as follows: Rank 1 Rank 2 34 35 36 37 38 39 40 Based on present value index calculated in Part 5, the proposals shoukd be ranked as follows: Rank 1 Rank 2 12 3 8. Key essay answer here PR 26-6A Capital rationing decision for a servic four proposals Clearcast Communications Inc. is a ment funds among four proposals. The from operations, and net cash flow for each proposal are OBJ. 2, 3, 5 nsidering allocating a limited amount of capital invest e amount of proposed investment, estimated income as follows: Net Cash Flow Income from Operations Investment Proposal A: Year $450,000 $120,000 30,000 30,000 20,000 10,000 120,000 110,000 100,000 60,000 $510,000 $100,000 80,000 60,000 30,000 (30,000) $ 60,000 Proposal B: $200,000 $ 60,000 40,000 20,000 (10,000) (20,000) 20,000 $290,000 $100,000 90,000 Proposal C: $320,000 36,000 90,000 90,000 80,000 80,000 26,000 26,000 16,000 16,000 $440,000 $200,000 $120,000 92,000 Proposal D: $540,000 180,000 160,000 120,000 100,000 $760,000 72,000 52,000 12,000 (8,000) $220,000 4 Capital nvesn The company's capital rationing policy requires a maximum cash pa of three years. In addition, a minimum average rate of return of 12% is projects. If the preceding standards are met, the net present value method nl value indexes are used to rank the remaining proposals. and present Instructions 1. Compute the cash payback period for each of the four proposals. 2. Giving effect to straight-line depreciation on the investments and assuming no residual value, compute the average rate of return for each of the four ped Round to one decimal place proposals 3. Using the following format, summarize the results of your computations i (1) and (2). By placing the calculated amounts in the first two columns and by placing a check mark in the appropriate column to the right, indicate proposals should be accepted for further analysis and which should be on the left e which rejected. Average Rate of Return Accept for Further AnalysisReject Cash Payback Period Proposal 4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value of $1 table appearing in this chapter (Exhibit 2) decimal places of net cash flows computed in part (4). indexes computed in part (5) in parts (6) and (7). 5. Compute the present value index for each of the proposals in part (4). Round to two 6. Rank the proposals from most attractive to least attractive, based on the present values 7. Rank the proposals from most attractive to least attractive, based on the present value 8. Based on the analyses, comment on the relative attractiveness of the proposals ranked