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 X Proposal Y Proposal Z

Initial investment $52,000 $52,000 $52,000

Cash flow from operations

Year 1 50,000 26,000 52,000

Year 2 2,000 26,000

Year 3 27,000 27,000

Disinvestment 0 0 0

Life (years) 3 years 3 years 1 year

(a) Select thebestinvestment proposalusing 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 10 percent.

• Round accounting rate of returnfour decimal places.
• Round net present value to the nearest whole number.
• Use negative signs with your answers, when appropriate.

Proposal X Proposal Y Proposal Z Best proposal

Payback period (years)

Accounting rate of return

Net present value