Gavin and Alex,baseball Consultants,are in Need of a Microcomputer Network

question 101

Essay

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:
$$\begin{array} { | l | r | r | r | } \hline & \text { Proposal A } & \text { Proposal B } & \text { Proposal C } \\\hline \text { Initial investment in equipment } & \$ 90,000 & \$ 90,000 & \$ 90,000 \\\hline \begin{array} { l } \text { Annual cash increase in } \\\text { operations: }\end{array} & & & \\\hline \text { Year 1 } &80,000 & 45,000 & 90,000 \\\hline \text { Year 2 } & 10,000 & 45,000 & 0 \\\hline \text { Year 3 } &45,000 & 45,000 & 0 \\\hline \text { Salvage value } &0&0&0 \\\hline \text { Estimated life } & 3 \mathrm { yrs } & 3 \mathrm { yrs } & 1 \mathrm { yrs } \\\hline\end{array}$$ The company uses straight-line depreciation for all capital assets.
Required:
a.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%.
b.Rank each proposal 1,2,and 3 using each method separately.Which proposal is best? Why?