Monitor Consulting Inc. is in need of a Date Analytic Terminal for its financial analysts. The company has
received three proposals, with related facts as follows:
Proposal AProposal BProposal C
Initial investment in equipment$90,000$90,000$90,000
Annual cash inflow increases in operations:
Year 180,00045,00090,000
Year 210,00045,0000
Year 345,00045,0000
Salvage value000
Estimated life3 yrs.3 yrs.1 yr.
I
The company uses straight-line depreciation for all capital assets. Ignore income taxes.
Required:
a.Compute the payback period, net present value, and accrual accounting rate of return using average
annual income, for each proposal. Use a discount rate of 14 percent.
b.Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best? Why?