PROBLEM 26.2B Analyzing Capital Investment Proposals L026-1, L026-2, LO26-3, L026-4 Tucker 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. Items in addition to depreciation may have attributed to differences in the estimated annual cash ow and net income gures shown below. Proposal A Proposal B Required investment in equipment $720,000 $650,000 Estimated service life of equipment 10 years 8 years Estimated salvage value $ 0 $150,000 Estimated annual net cash flow 180,000 162,500 Estimated increase in annual net income 90,000 70,000 Instructions a. For each proposal, compute the (l) payback period, (2) return on average investment, and (3) net present value. discounted at an annual rate of 15 percent. (Round the return on investment to the nearest tenth of a percent.) Use Exhibits 263 and 264 where necessary. b. On the basis of your analysis in part a. state which proposal you would recommend and explain the reasons for your choice. PROBLEM 26.35 Analyzing Capital Investment Proposals L0261, L026-2, LO26-3, Page 1150 L026-4 Nelson Equipment Company is evaluating two alternative investment opportunities. The controller of the company has prepared the following analysis of the two investment proposals. Items in addition to depreciation may have attributed to differences in the estimated annual cash ow and net income gures shown below. Proposal A Proposal B Required investment in equipment $600,000 $525,000 Estimated service life of equipment 6 years 7 years Estimated salvage value $120,000 $ 0 Estimated annual net cash flow 150,000 140,000 Estimated annual net income 100,800 78,750