Presented is information pertaining to the cash flows of
three mutually exclusive investment proposals:
Proposal
A
Proposal
B
Proposal C
Initial
investment…………………………….................$60,000
$60,000
$60,000
Cash flow from operations
Year
1………………………………...............................50,000
30,000
60,000
Year
2………………………………................................6,000
30,000
Year
3………………………………...............................29,000
25,000
Disinvestment………………………………......................0
0
0
Life (years)………………………………….....................3
years
3
years
1 year
Required
Rank these investment proposals using the payback
period, the accounting rate of return on initial investment, and
the present value criteria. Assume that the organization’s cost of
capital is 12 percent....