Gavin and Alex, baseball consultants, are in need of a microcomputer network for
ID: 2353274 • Letter: G
Question
Gavin and Alex, baseball consultants, are in need of a microcomputer network for their staff. They have received three proposals, with related facts as follows:
The company uses straight-line depreciation for all capital assets.
Question 1: 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%. (10 points)
Question 2:Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best? Why? (five points)
The company uses straight-line depreciation for all capital assets.
Question 1: 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%. (10 points)
Question 2:Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best? Why? (five points)
Gavin and Alex, baseball consultants, are in need of a microcomputer network for their staff. They have received three proposals, with related facts as follows: The company uses straight-line depreciation for all capital assets. Question 1: 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%. (10 points) Question 2:Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best? Why? (five points)
Explanation / Answer
Proposal A:
Predicted
Cash Flows
Year(s)
PV Factor
PV of
Cash Flows
Investment
$(90,000)
0
1.000
$(90,000)
Annual operations:
Year 1
80,000
1
0.877
70,160
Year 2
10,000
2
0.769
7,690
Year 3
45,000
3
0.675
30,375
Net present value
$ 18,225
Proposal B:
Predicted
Cash Flows
Year(s)
PV Factor
PV of
Cash Flows
Investment
$(90,000)
0
1.000
$(90,000)
Annual operations:
Year 1
45,000
1
0.877
39,465
Year 2
45,000
2
0.769
34,605
Year 3
45,000
3
0.675
30,375
Net present value
$ 14,445
Proposal C:
Predicted
Cash Flows
Year(s)
PV Factor
PV Of
Cash Flows
Investment
$(90,000)
0
1.000
$(90,000)
Annual operations:
Year 1
90,000
1
0.877
78,930
Net present value
$ 11,070
Proposal A:
Predicted
Cash Flows
Year(s)
PV Factor
PV of
Cash Flows
Investment
$(90,000)
0
1.000
$(90,000)
Annual operations:
Year 1
80,000
1
0.877
70,160
Year 2
10,000
2
0.769
7,690
Year 3
45,000
3
0.675
30,375
Net present value
$ 18,225
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