The Lavender Toy Company has been a family run business for the last 25 years. It is well recognized in the state of Michigan for selling educational related toys specifically for children, ages 4 through 8. Once a year, Lavender Toy goes through an extensive analysis as to which new toy they should promote for the upcoming year. They only have room to manufacture one new toy because they will drop the poorest selling toy, automatically, from their product line. Colleen, Kasey, Elvira June, Market Experts employed by Lavender Toy, have prepared the following information regarding their suggestions as to which toy should be promoted during the upcoming year.

Required:
Using your new 3 tools for capital budgeting, rank these investment opportunities: 1 = highest, 2 = middle, 3 = lowest. Show all computations in good form.
Support your rankings with sound capital budgeting analysis.

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Potential Toys to be considered Initial Investment Annual Cash Flows Number of Years flow expected to continue Salvage Value Betsy Blocks Knute NumbersDonna Dollie $90,000 $108,000 $78,950 N/A N/A None $128,000 at end of $36,000 $42,000 None S1500 Lump Sum Payment one one ear Corporate Rate of Retum10 per cent10 per cent 10 per cent Current rate of interest of 4 per cent 4 per cent 4 per cent CDs