Question

Based on the analysis of the four proposals below, which one would you recommend? Explain your reason and include the meaning of the capital analysis methods. Think of how you might communicate your analysis to others that don’t know what these methods are about.     (12 points) Proposal	Cash Payback Period	Average Rate of Return	Net Present Value	Present Value Index
A	4	5%	$   (71,260)	0.8416
B	2.33	18%	26,200	1.1310
C	3.5	15%	1,350	1.0042
D	3	16%	29,000	1.0537

Answer 1

-Cash payback period is the time required to get the initial investment from the project .

Shareholders who are willing to take less risk they choose project with less payback period.

In scenarion project B has lesser payback period.

- in case of ARR , measure the percentage of return generated from investment.

Higher arr is considered for accepting Investment

In thos case project B has higher ARR.

- in case on Npv , it is the sum of discounted all relavent inflows and otflows , if the npv is positive the project is acceptable.

In case project D has higher npv.

- profitabikity index is the ratio of npv to investment .

Higher pI represent that project earns higher return from lesser investment cost.

When considering all techniques project B is highly acceptable since ut has less risk becuase lower payback period of 2.33 years, it has higher arr of 18%, its npv is possitive if $26,200and pI says that it had generate 130% of investment they spended.