Presented is information pertaining to the cash flows of three mutually exclusive investment proposals: Proposal X Proposal
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Question:
Presented is information pertaining to the cash flows of three mutually exclusive investment proposals:
Proposal X | Proposal Y | Proposal Z | |
---|---|---|---|
Initial investment | $98,000 | $98,000 | $98,000 |
Cash flow from operations | |||
Year 1 | 90,000 | 49,000 | 98,000 |
Year 2 | 8,000 | 49,000 | |
Year 3 | 49,000 | 49,000 | |
Disinvestment | 0 | 0 | 0 |
Life (years) | 3 years | 3 years | 1 year |
Select the best investment proposal 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 10 percent.
Note: Follow rounding instructions noted for each computation. Use a negative sign with your answers, when appropriate.
Proposal X | Proposal Y | Proposal Z | Best proposal | |
---|---|---|---|---|
Payback period (years) | ||||
Accounting rate of return; Round answers to 4 decimal places. | ||||
Net present value; Round answers to nearest whole number. |
Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
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