Ranking Investment Proposals: Payback Period, Accounting Rate of Return, and Net Present Value Presented is information pertaining to the cash flows of three mutually exclusive investment proposals: Proposal A Proposal B Proposal C $45.000 $ 45,000 $45.000 Initial investment Cash flow from operations Year 1 Year 2 Year 3 Disinvestment Life (years) 40.000 5,000 22,500 0 3 years 22,500 22,500 22,500 0 3 years 45,000 0 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 12 percent.. Note: Follow rounding instructions noted for each computation. Use a negative sign with your answers, when appropriate. Proposal A Proposal B Proposal C Best proposal Payback period (years) Accounting rate of return; Round answers to 4 decimal places. Net present value; Round answers to nearest whole number. $ $

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Ranking Investment Proposals: Payback Period, Accounting Rate of Return, and Net Present Value
Presented is information pertaining to the cash flows of three mutually exclusive investment proposals:
Proposal A Proposal B Proposal C
$ 45,000
$ 45,000
$ 45,000
Initial investment
Cash flow from operations
Year 1
Year 2
Year 3
Disinvestment
Life (years)
40,000
5,000
22,500
22,500
22,500
22,500
0
0
3 years 3 years
45,000
0
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 12 percent..
Note: Follow rounding instructions noted for each computation. Use a negative sign with your answers, when appropriate.
Proposal A
Proposal B Proposal C Best proposal
Payback period (years)
Accounting rate of return; Round answers to 4 decimal places.
Net present value: Round answers to nearest whole number. S
Transcribed Image Text:Ranking Investment Proposals: Payback Period, Accounting Rate of Return, and Net Present Value Presented is information pertaining to the cash flows of three mutually exclusive investment proposals: Proposal A Proposal B Proposal C $ 45,000 $ 45,000 $ 45,000 Initial investment Cash flow from operations Year 1 Year 2 Year 3 Disinvestment Life (years) 40,000 5,000 22,500 22,500 22,500 22,500 0 0 3 years 3 years 45,000 0 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 12 percent.. Note: Follow rounding instructions noted for each computation. Use a negative sign with your answers, when appropriate. Proposal A Proposal B Proposal C Best proposal Payback period (years) Accounting rate of return; Round answers to 4 decimal places. Net present value: Round answers to nearest whole number. S
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