Fr each proposal compute the 1 payback period 2 return on

Reference no: EM13482259

Micro 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 forthe two proposals:

Proposal 1 Proposal 2

Required investment inequipment.......................................$360,000 $350,000

Estimated service life ofequipment......................................8 years 7 years

Estimated salvagevalue................................................... $--0-- $14,000

Estimated annual cost savings (net cashflow)....................75,000 76,000

Depreciation on equipment (straight-linebasis)..................45,000 48,000

Estimated increase in annual netincome............................30,000 28,000

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 12 percent. (Round the payback period to the nearest tenth of a year and the return on investment to the nearest tenth of a percent.)

b. Based on your analysis in part a, state which proposal you would recommend and explain the reasons for your choice.

Reference no: EM13482259

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