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

Question:

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

Instructions
a. For each proposed investment, compute the (1) payback period, (2) return on average investment, and (3) net present value, discounted at an annual rate of 10 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.
Exhibit 26-3: Present Value of $1 Payable in n Periods

Exhibit 26-4: Present Value of a $1 Annuity Receivable Each Period for n Periods

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

Net Present Value
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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,...