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    Three proposals for Gavin and Alex for a nicrocomputer network

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    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%.
    Question 2: Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best? Why?

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    Please find the solutions attached.

    a. Payback Method

    Payback for Proposal A: Year 1 $80,000
    Year 2 10,000
    Payback is 2 years $90,000

    Payback for Proposal B: Year 1 $45,000
    Year 2 45,000
    Payback is 2 years $90,000

    Payback for proposal C: Year 1 $90,000
    Payback is 1 year

    Net Present Value:

    Proposal A: Predicted
    Cash Flows Year(s) PV Factor PV of
    Cash ...

    Solution Summary

    The solution evaluates three proposals for Gavin and Alex for a nicrocomputer network.