Please work for Option 3

The senior VP in charge of your area asked you to recommend the purchase of a new, expensive asset for the firm. You assemble a team to help you. Your goal is to find which of the three options is best. To encourage capital investments, the government has exempted taxes on profits from new investments. This legislation is to be in effect for the foreseeable future.The companys average reported net income is $1,250,000.The team is considering the following options

Option 1: The asset cost is $300,000. The asset is expected to have a 10-year useful life with no salvage value.Straight-line depreciation is used.The net cash inflow is expected to be $89,000 each year for 10 years. The company uses a 12% discount rate in evaluating capital investments.A portion (60%) of this asset is made from recycled material. When disposed of, certain parts of the asset can be recycled.The delivery time for this asset is 8 weeks.

Option 2: The asset cost is $575,000.The machine is expected to have a 10-year useful life with no salvage value.Straight-line depreciation is used. The net cash inflow is expected to be $142,000 each year for 10 years.The company uses a 12% discount rate in evaluating capital investments.This asset is the smallest and most efficient in its productline. The delivery time for this asset is 6 weeks.

Option 3: The asset cost is $280,000,The asset is expected to have a 10-year useful life with no salvage value. Straight-line depreciation is used. The net cash inflow is expected to be $62,000 each year for 10 years. The company uses a 12% discount rate in evaluating capital investments.This asset has a lower than normal rating because of frequent maintenance needs. The delivery time for this asset is 3 weeks.

REQUIRED

You may use Excels built-in functions for NPV and IRR. Compute the following for the above-referenced investment

options:

1.Payback period(assume cash inflows occur evenly throughout the year)

2.ARR based on initial investment

3.NPV(assume that cash inflows occur at year-end)

4.Internal rate of return (IRR)

5. Present Value Index

Create a ranking chart to show how the three alternatives rank on each of the four measures.See sample below (or something similar).

	Option 1	Option 2	Option 3
Payback period	1	2	3
Net present value	2	1	3
Internal rate of return	3	1	2
Accounting rate of return	1	2	3
Present Value Index	2	1	3
Total	9	7	14

SUBMIT

Prepare a visually appealing PowerPoint presentation with the following information(on separate slides):

a.The purpose of the project.

b.The three alternatives

c.The computation and results for all three potential alternatives for

:i.Payback

ii.Net Present Value

iii.Internal Rate of Return

iv.Accounting rate of return

v.Present Value Index

d.The ranking of results of the five measures

e. Any other factor(s) to consider for the project and alternatives

f.Your recommended alternative indicating:

i.Quantitative reasons for your recommendation

ii.Any other reasons for your choice

g.Acknowledgement of any outside sources used