Virginia Technology is considering two alternative proposals for modernizing its production facilities. To provide a basis for

Question:

Virginia Technology is considering two alternative proposals for modernizing its production facilities. To provide a basis for selection, the cost accounting department has developed the following data regarding the expected annual operating results for the two proposals:

Instructions
a. For each proposal, compute the
(1) Payback period,
(2) Return on average investment, and
(3) Net present value, discounted at an annual rate of 15 percent. (Round the payback period to the nearest tenth of a year and the return on investment to the nearest tenth of a percent.) Use Exhibits 26-3 and 26-4 where necessary.
b. On the basis of your analysis in part a, state which proposal you would recommend and explain the reasons for your choice.

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...