Reference no: EM132565549
Monitor Consulting Inc. is in need of a Date Analytic Terminal for its financial analysts. The company has 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 inflow increases 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. Ignore income taxes.
Required:
Question a. Compute the payback period, net present value, and accrual accounting rate of return using average annual income, for each proposal. Use a discount rate of 14 percent.
Question b. Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best? Why?
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