Ranking Investment Proposals:
Payback Period, Accounting Rate of Return, and Net Present ValuePresented is information pertaining to the cash flows of threemutually exclusive investment proposals:
Proposal.............................. X Y Z
Initial investment................. 98,000 98,000 98,000
Cash flow from operations
Year 1................................. 90,000 49,000 98,000
Year 2................................. 8,000 49,000
Year 3................................. 49,000 49,000
Disinvestment..................... 0 0 0
Life (years) 3 years 3 years 1 year
(a) Select the best investment proposal using the paybackperiod, the accounting rate of return on initial investment, andthe net present value criteria. Assume that the organization's costof capital is 10 percent. Round accounting rate of return fourdecimal places. Round net present value to the nearest wholenumber. Use negative signs with your answers, when appropriate.
........................................................Proposal X Proposal Y Proposal Z Best proposal
Payback period (years)................... __________ ____________________ __________
Accounting rate of return Answer... __________ ____________________ __________
Net present value........................... ____________________ __________ __________