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Patrick Star and Spongebob Squarepants, aquatic entreprenuers, are considering the purchase of a crabbie pattie conveyor system for their new restaurant. Three proposals have been put forth by Plankton Accounting. They are as follows:
Proposal Amoeba requires an initial investment of $100,000. Annual cash increase in operations is $70,000 in Year 1, $30,000 in Year 2, and $10,000 in Year 3. The salvage value is $0 and the estimated useful life is 3 years.

Proposal Barracuda requires an initial investment of $100,000. Annual cash increase in operations is $50,000 for Years 1 through 3. The salvage value is $0 and the estimated useful life is 3 years.

Proposal Crab requires an initial investment of $100,000. Annual cash increase in operations is $100,000 in Year 1 and $0 in Years 2 and 3. The salvage value is $0 and the estimated useful life is 1 year.
Assume that straight-line depreciation is used for all capital assets.

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 12%.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M999441

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