Rafa and Sloane, tennis consultants, are interested in buying an automated system to analyze arm and leg movements for their tennis students. They feel that they could charge $100 per hour to students to use this machine. They have received three competing bids for such a system. But as their skills relate more to tennis, they are confused about which to accept. They have hired the USFSP Cost 1 class to analyze such. They think all the systems would have a useful life of 5 years.

Proposal A

Proposal B

Proposal C

Initial investment in equipment

$60,000

$100,000

$45,000

Working capital needs, returned at end of project life

5,000

1,000

7,000

Annual maintenance costs

10,000

3,000

12,500

Salvage value at end of year 5

10,000

35,000

0

Number of hours billed to students

250

300

200

1. Compute the net present value of each proposal with a discount rate of 12%.

2. Compute the payback of each.

3. Compute the accrual accounting rate of return (AAROR) on both a pretax and after-tax basis. As Rafa and Sloane are so successful on the tennis tour, their tax rate is 40%.

4. Which project would you recommend and why? Include both quantitative and qualitative factors. This is your conclusion.

5. Include a summary as follows (in input/summary tab):

SUMMARY

A

B

C

NPV

Payback

AAROR

pretax

after tax

HINTS

1. Set up your Excel spreadsheet with 4 tabs

Input and conclusion (be sure to include the summary table)

Net present value

Payback

Accrual accounting rate of return

You must link your inputs (from input tab) to your other spreadsheets. You must use the net present value excel function for the NPV calculation. You also must link your outputs (answers) back to the summary table.