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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, and net present value. 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?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9977880

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