Botany Bay Fisheries Needs a New Refrigeration System on Their

question 63

Essay

Botany Bay Fisheries needs a new refrigeration system on their trawler.They have received three
proposals,with related facts as follows:
$\begin{array}{|l|r|r|r|}\hline & \text { Proposal A } & \text { Proposal B } & \text { Proposal C } \\\hline \text { Initial investment in equipment } & \$ 180000 & \$ 180000 & \$ 180000 \\\hline \text { Annual cash increase in } & & & \\\text { operations: } & & & \\\hline \text { Year 1 } & 160000 & 90000 & 180000 \\\hline \text { Year 2 } & 20000 & 90000 & 0 \\\hline \text { Year 3 } & 90000 & 90000 & 0 \\\hline \text { Salvage value } & 0 & 0 &0 \\\hline \text { Estimated life } & 3 \mathrm{yrs} & 3 \mathrm{yrs} & 1 \mathrm{yr}\\\hline\end{array}$
The company uses straight-line depreciation for all capital assets.
Required:
a.Calculate 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? Why?
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Continental Army

The revolutionary war army authorized by the Continental Congress in 1775 and led by General George Washington to fight against British rule in America.