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Explain the difference in rankings

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Reference no: EM131116887

Ranking Investment Proposals: Payback Period, Accounting Rate of Return, and Net Present Value Presented is information pertaining to the cash flows of three mutually exclusive investment proposals:

 

Proposal A

Proposal B

Proposal C

Initial Investment

$45,000

$45,000

$45,000

Cash flow from operations


Year 1

$40,000

$22,500

$45,000

Year 2

5,000

$22,500

Year 3

22,500

22,500

Disinvestment

0

0

0

Life (Years)

3 years

3 years

1 year

REQUIRED

a. Rank these investment proposals using the payback period, the accounting rate of return on initial investment, and the net present value criteria. Assume that the organization's cost of capital is 12 percent. Round calculations to four decimal places.

b. Explain the difference in rankings. Which investment would you recommend?

 

Reference no: EM131116887

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