93) Terrain Vehicle has received three proposals for its new vehicle-painting machine.
Information on each proposal is as follows:
Proposal X Proposal Y Proposal Z
Initial investment in equipment $180 000 $120 000 $190 000
Working capital needed 0 0 10 000
Annual cash saved by operations:
Year 1 75 000 50 000 80 000
Year 2 75 000 48 000 80 000
Year 3 75 000 44 000 80 000
Year 4 75 000 8000 80 000
Salvage value end of year:
Year 1 100 000 80 000 60 000
Year 2 80 000 60 000 50 000
Year 3 40 000 40 000 30 000
Year 4 10 000 20 000 15 000
Working capital returned 0 0 10 000
Required:
Determine each proposal's payback.
93)
94) Port Phillip Fisheries need a new navigation system for their fishing boat. They have
received three proposals, with related facts as follows:
Proposal A Proposal B Proposal C
Initial investment in equipment $90 000 $90 000 $90 000
Annual cash increase in
operations:
Year 1 80 000 45 000 90 000
Year 2 10 000 45 000 0
Year 3 45 000 45 000 0
Salvage value 0 0 0
Estimated life 3 yrs 3 yrs 1 yr
The company uses straight-line depreciation for all capital assets.
Required:
a. Compute the payback period, net present value, and accrual accounting rate of return
with initial investment, for each proposal. Use a required rate of return of 14%.
b. Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best?
94)
40
Why?
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