Capital Budgeting Mason Co. is evaluating two alternative investment proposals.

Question

Capital Budgeting

Mason Co. is evaluating two alternative investment proposals. Below are data for each proposal:

The following information was taken from present value tables:


All revenue and expenses other than depreciation will be received and paid in cash. The company uses a discount rate of 12% in evaluating all capital investments.

Compute the following for each proposal (round payback period to the nearest tenth of a year and round return on average investment to the nearest tenth of a percent):

Proposal A

Proposal B

(a) Annual net cash flow:

$

$

(b) Payback period (in years):

  

(c) Average investment:

$

$

(d) Return on average investment:

   %

%

(e) Net present value:

$             

$

(f) Based on your analysis, which proposal appears to be the best investment?

Proposal A

Proposal B

(a) Annual net cash flow:

$

$

(b) Payback period (in years):

  

(c) Average investment:

$

$

(d) Return on average investment:

   %

%

(e) Net present value:

$             

$

Explanation / Answer

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