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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