Solution-Compute the payback period and net present value

Compute the payback period and net present value

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Reference no: EM131776776

Problem - Gavin and Alex, baseball consultants, are in need of a microcomputer network for their staff. They have received three proposals, with related facts as follows:

	Proposal A	Proposal B	Proposal C
Initial investment in equipment	$90,000	$90,000	$90,000
Annual cash increase in operations:
Year 1	80,000	45,000	90,000
Year 2	10,000	45,000	0
Year 3	45,000	45,000	0
Salvage value	0	0	0
Estimated life	3 yrs	3 yrs	1 yr

The company uses straight-line depreciation for all capital assets.

Required:

a. Compute the payback period, net present value, and accrual accounting rate of return with initial investment, for each proposal. Use a required rate of return of 14%.

b. Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best? Why?

Reference no: EM131776776

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Compute the payback period and net present value

Reference no: EM131776776

Reference no: EM131776776

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