Ranking Investment Proposals: Payback Period, Accounting Rate of Return, and Net Present Value

Presented is information pertaining to the cash flows of three mutually exclusive investment proposals:

Select the best investment proposal using the payback period, the accounting rate of return on initial investment, and the net present value criteria. Assume that the organization's cost of capital is $12$

percent..

Note: Follow rounding instructions noted for each computation. Use a negative sign with your answers, when appropriate.Ranking Investment Proposals: Payback Period, Accounting Rate of Return, and Net Present Value

Presented is information pertaining to the cash flows of three mutually exclusive investment proposals:

Proposal A Proposal B Proposal C

Initial investment $ $45,000$ $ $45,000$ $ $45,000$

Cash flow from operations

Year $140,00022,50045,000$

Year $25,00022,500$

Year $322,50022,500$

Disinvestment $000$

Life $($years$)3$ years $3$ years $1$ year

Select the best investment proposal using the payback period, the accounting rate of return on initial investment, and the net present value criteria. Assume that the organization's cost of capital is $12$ percent..

Note: Follow rounding instructions noted for each computation. Use a negative sign with your answers, when appropriate.

Proposal A Proposal B Proposal C Best proposal

Payback period $($years$)$ Answer

$2$

Answer

$2$

Answer

$1$

Answer

C

Accounting rate of return; Round answers to $4$ decimal places. Answer

$0\mathrm{.}5$

Answer

$0\mathrm{.}5$

Answer

$100$

Answer

C

Net present value; Round answers to nearest whole number. Answer

$8,640$

Answer

$4,210$

Answer

$1,116$

Answer

A