Gavin and Alex, baseball consultants, are in need of a microcomputer network for their staff....
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Accounting
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:
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.
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?
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