Patrick Star and Spongebob Squarepants, aquatic entreprenuers, are considering t
ID: 2366459 • Letter: P
Question
Patrick Star and Spongebob Squarepants, aquatic entreprenuers, are considering the purchase of a crabbie pattie conveyor system for their new restaurant. Three proposals have been put forth by Plankton Accounting. They are as follows: Proposal Amoeba requires an initial investment of $100,000. Annual cash increase in operations is $70,000 in Year 1, $30,000 in Year 2, and $10,000 in Year 3. The salvage value is $0 and the estimated useful life is 3 years. Proposal Barracuda requires an initial investment of $100,000. Annual cash increase in operations is $50,000 for Years 1 through 3. The salvage value is $0 and the estimated useful life is 3 years. Proposal Crab requires an initial investment of $100,000. Annual cash increase in operations is $100,000 in Year 1 and $0 in Years 2 and 3. The salvage value is $0 and the estimated useful life is 1 year. Assume that straight-line depreciation is used for all capital assets. Your task is to compute 1)the payback period, 2) net present value, and 3) accrual accounting rate of return with initial investment for each proposal. Use a required rate of return of 12%.Explanation / Answer
THIS WILL BE HELPFUL FOR YOU AND PL RATE ME 1ST Praposal 1 Payback period = he's not getting paid back completely Net Present Value = -100000 + 70000/1.12 + 30000/1.12^2 + 10000/1.12^3 = -6466.38 proposal 2 Payback period = 3 years Net Present Value = -100000 + 50000/1.12 + 50000/1.12^2 + 50000/1.12^3 = 20091.56 proposal 3 Payback period = he's not getting paid back completely Net Present Value = -100000 + 100000/1.12 = -10714.28