Presented is information pertaining to the cash flows ofthree mutually exclusive investment proposals:
ProposalA ProposalB Proposal C
Initialinvestment…………………………….................$60,000 $60,000 $60,000
Cash flow from operations
Year1………………………………...............................50,000 30,000 60,000
Year2………………………………................................6,000 30,000
Year3………………………………...............................29,000 25,000
Disinvestment………………………………......................0 0 0
Life (years)………………………………….....................3years 3years 1 year
Required
- Rank these investment proposals using the paybackperiod, the accounting rate of return on initial investment, andthe present value criteria. Assume that the organization’s cost ofcapital is 12 percent. Round calculations to four decimalplaces.
- Explain the difference in rankings. Which investmentwould you recommend?
