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Selecting the suitable investment proposal/s

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AAAcme Company is preparing an investment plan and has received three proposals with investments and returns as shown below. Which one(s) should be approved using a discounted payback period of 3 years (meaning by the end of year 3). AAAcme uses a MARR of 12%.

Cash Flow
Year X Y Z
Initial ($100,000) ($70,000) $135,000)
1 $20,000 $10,000 $25,000
2 $40,000 $50,000 $30,000
3 $80,000 $20,000 $60,000
4 $50,000 $10,000 $100,000
5 $30,000 $10,000 $150,000

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Solution Summary

Solution selects the investment proposal/s based upon discounted payback method.

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Please refer attached file for better clarity of tables.

Investment X

Year Cash inflow PV Factor at 12% PV =Cash Inflow*PV Factor Cumulative PV
1 20,000 0.8929 17857 17857
2 40,000 0.7972 31888 49745
3 80,000 0.7118 56942 106687
4 50,000 0.6355 31776 138463
5 30,000 0.5674 17023 ...

Solution provided by:
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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