Welsh Industries is evaluating two alternative investment opportunities. The controller of the company has prepared the following analysis of the two investment proposals:

	Proposal A			Proposal B
Required investment in equipment	$	330,000		$	375,000
Estimated service life of equipment		5	years		6	years
Estimated salvage value	$	15,000		$	0
Estimated annual net cash flow		90,000			88,000
Depreciation on equipment (straight-line basis)		63,000			62,500
Estimated annual net income		27,000			25,500

Instructions

a.

For each proposed investment, compute the following. Assume discounted at an annual rate of 10 percent. Use Exhibits 26-3 and 26-4 where necessary. (Round your "PV factors" to 3 decimal places, payback period to the nearest tenth of a year and the return on average investment to the nearest tenth of a percent.)

		Proposal A		Proposal B
(1)	Payback period		years		years
(2)	Return on average investment		%		%
(3)	Net present value
		sheet is drawn here

b.

Based on your computations in part a, which proposal do you consider to be the better investment?

	Proposal A
	Proposal B