Acc102 Principles of Managerial Accounting: Final Project – Mason Co.

Acc102 Principles of Managerial Accounting

Final Project

Mason Co. Is evaluating two alternative investment proposals. Below are data for each proposal:

Proposal A Proposal B

Initial investment cost............................ $84,000 $96,000

Estimated useful life................................ .. 5 years 6 years

Estimated salvage value............................. $4,000 -0-

Estimated annual net income................... $8,200 $8,000

The following information was taken from present value tables:

Present value

$1 due in 5 years , discounted at 12% ................... .567

$1 due in 6 years , discounted at 12% ................... .507

$1 received annually for 5 years , discounted at 12% ............3.605

$1 received annually for 5 years , discounted at 12% ............4.111

All revenue and expenses other than depreciation will be received and paid in cash. The company uses a discount rate of 12% in evaluating all capital investments.

Compute the following for each proposal (round payback period to the nearest tenth of a year and round return on average investment to the nearest tenth of a percent):

Proposal A Proposal B

(a) Annual net cash flow: $ $

(b) Payback period (in years):

(c) Average investment: $ $

(d) Return on average investment % %

(e) Net present value: $ $

(f) Based on your analysis, which proposal appears to be the best investment?
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