Presented is information pertaining to the cash flows of three mutually exclusive investment proposals: Proposal A Proposal B Proposal C Initial investment…………………………….................$60,000 $60,000 $60,000 Cash flow...

90.2K

Verified Solution

Question

Accounting

Presented is information pertaining to the cash flows ofthree mutually exclusive investment proposals:
ProposalA                    ProposalB            Proposal C
Initialinvestment…………………………….................$60,000                          $60,000                 $60,000
Cash flow from operations
Year1………………………………...............................50,000                              30,000                    60,000
Year2………………………………................................6,000                               30,000
Year3………………………………...............................29,000                              25,000
Disinvestment………………………………......................0                                      0                              0
Life (years)………………………………….....................3years                             3years                      1 year
Required
Rank these investment proposals using the paybackperiod, the accounting rate of return on initial investment, andthe present value criteria. Assume that the organization’s cost ofcapital is 12 percent. Round calculations to four decimalplaces.
Explain the difference in rankings. Which investmentwould you recommend?

Answer & Explanation Solved by verified expert

4.4 Ratings (676 Votes)

A Ranking on basis of Payback Period It is clear that in Proposal C the Investment gets returned in 1st year itself while in Proposal B it is happening in 2nd year and in case of Proposal A in 3rd year so Ranking would be as below 1st Rank Proposal C 2nd See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member