2. Sigma Co. is evaluating two alternative investment proposals. Below are data for each proposal:

Proposal A Proposal B

Initial invenstment cost.......... $84,000 $96,000

Estimated usuful life.............. 5 years 6 years

Estimated salvage value........ $4,000 0

Estimated annual net income..... $8,200 $8,000

All revenue and expenses other than depreciation will be received and paid in cash. The company uses a discount rate of 12% in evaluating all capital investments.

Compute the following for each proposal (round payback period to the nearest tenth of a year and round return on average investment to the nearest tenth of a percent):

Proposal A Proposal B

Annual net cash flow $________ $ _________

Payback period (in years) _______ _______

Average investment $________ $_________

Return on average investment ______% _______%

Net present value $________ $________

(f) Based on your analysis, which proposal appears to be the best investment?