Financial and Managerial Accounting: P26.3A Cartor Industries is evaluating two alternative

Financial and Managerial Accounting 
Problems 26.3A Analyzing Capital Investment Proposals 
Cartor Industries is evaluating two alternative investment opportunities. The controller of the company has prepared the following analysis of the two investment proposals: 
Proposal A Proposal B 
Required investment in equipment 220,000 240,000 
Estimated service life of equipment 5 years 6 years 
Estimated salvage value 10,000 0 
Estimated annual net cash flow 60,000 60,000 
Depreciation on equipment (straight-line basis) 42,000 40,000 
Estimated annual net income 18,000 20,000 

a. For each proposed investment, compute the following. Assume discounted at an annual rate of 10 percent. Use Exhibits 26-3 and 26-4 where necessary. (Round your answers to 3 decimal payback period to the nearest tenth of a year and the return on average investment to the nearest tenth of a percent. Omit the $ signs in your response.)places, 
1.Payback period 
2. Return on average investment 
3. Net present value 
b. Based on your computations in part a, which proposal do you consider to be the better investment? 
Powered by