Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows:

InvestmentYear Operating Income Net Cash FlowProposal A:$680,0001 $ 64,000 $ 200,0002 64,000 200,0003 64,000 200,0004 24,000 160,0005 24,000 160,000 $240,000$ 920,000Proposal B:$320,0001$ 26,000$ 90,0002 26,000 90,0003 6,000 70,0004 6,000 70,0005 (44,000) 20,000 $ 20,000$340,000Proposal C:$108,0001$ 33,400$ 55,0002 31,400 53,0003 28,400 50,0004 25,400 47,0005 23,400 45,000 $142,000$ 250,000Proposal D:$400,0001$100,000$ 180,0002 100,000 180,0003 80,000 160,0004 20,000 100,00050 80,000 $300,000$700,000

The company's capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.

Present Value of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83320.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.48250.7470.6210.5670.4970.40260.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.23390.5920.4240.3610.2840.194100.5580.3860.3220.2470.162

Required:

1. Compute the cash payback period for each of the four proposals.

Cash Payback PeriodProposal A2 years3 years3 years 6 months3 years 9 months4 years3 years 6 monthsProposal B2 years2 years 3 months3 years3 years 3 months4 years4 yearsProposal C2 years2 years 9 months3 years 3 months3 years 6 months4 years2 yearsProposal D2 years 3 months2 years 8 months3 years3 years 3 months3 years 10 months2 years 3 months

2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. If required, round your answers to one decimal place.

Average Rate of ReturnProposal Afill in the blank 5 %Proposal Bfill in the blank 6 %Proposal Cfill in the blank 7 %Proposal Dfill in the blank 8 %

3. Using the following format, summarize the results of your computations in parts (1) and (2) by placing the calculated amounts in the first two columns on the left and indicate which proposals should be accepted for further analysis and which should be rejected. If required, round your answers to one decimal place.

ProposalCash Payback PeriodAverage Rate of ReturnAccept or RejectA2 years2 years, 8 months3 years, 6 months4 years3 years, 6 monthsfill in the blank 10 % AcceptRejectRejectB2 years2 years, 8 months3 years, 4 months4 years4 yearsfill in the blank 13 % AcceptRejectRejectC2 years2 years, 8 months3 years, 4 months4 years2 yearsfill in the blank 16 % AcceptRejectAcceptD2 years2 years, 3 months2 years, 8 months4 years2 years, 3 monthsfill in the blank 19 % AcceptRejectAccept

4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 15% and the present value of $1 table above. Round to the nearest dollar.

Select the proposal accepted for further analysis.Proposal AProposal CProposal CProposal BProposal DProposal DPresent value of net cash flow total$fill in the blank 23$fill in the blank 24Less amount to be investedfill in the blank 25fill in the blank 26Net present value$fill in the blank 27$fill in the blank 28

5. Compute the present value index for each of the proposals in part (4). If required, round your answers to two decimal places.

Select proposal to compute Present value index.Proposal AProposal CProposal CProposal BProposal DProposal DPresent value index (rounded)fill in the blank 31fill in the blank 32

6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4).

Rank 1stProposal AProposal BProposal CProposal DProposal DRank 2ndProposal AProposal BProposal CProposal DProposal C

7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5).

Rank 1stProposal AProposal BProposal CProposal DProposal CRank 2ndProposal AProposal BProposal CProposal DProposal D

8. The analysis indicates that although Proposal

ABCDD

has the larger net present value, it is not as attractive as Proposal

ABCDC

in terms of the amount of present value per dollar invested. Proposal

ABCDD

requires the larger investment. Thus, management should use investment resources for Proposal

ABCDC

before investing in Proposal

ABCDD

, absent any other qualitative considerations that may impact the decision.