Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows: Investment Year Income from Operations Net Cash Flow Proposal A: $450,000 1 $ 30,000 $120,000 2 30,000 120,000 3 20,000 110,000 4 10,000 100,000 5 (30,000) 60,000 $ 60,000 $510,000 Proposal B: $200,000 1 $ 60,000 $100,000 2 40,000 80,000 3 20,000 60,000 4 (10,000) 30,000 5 (20,000) 20,000 $ 90,000 $290,000 Proposal C: $320,000 1 $ 36,000 $100,000 2 26,000 90,000 3 26,000 90,000 4 16,000 80,000 5 16,000 80,000 $120,000 $440,000 Proposal D: $540,000 1 $ 92,000 $200,000 2 72,000 180,000 3 52,000 160,000 4 12,000 120,000 5 (8,000) 100,000 $220,000 $760,000 The company's capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Present Value of $1 at Compound
Interest Year 6% 10% 12% 15% 20%
1) 0.943 0.909 0.893 0.870 0.833
2) 0.890 0.826 0.797 0.756 0.694
3) 0.840 0.751 0.712 0.658 0.579
4) 0.792 0.683 0.636 0.572 0.482
5) 0.747 0.621 0.567 0.497 0.402
6) 0.705 0.564 0.507 0.432 0.335
7) 0.665 0.513 0.452 0.376 0.279
8) 0.627 0.467 0.404 0.327 0.233
9) 0.592 0.424 0.361 0.284 0.194
10) 0.558 0.386 0.322 0.247 0.162
Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. If required, round your answers to one decimal place.
Average Rate of Return Proposal A: %
Proposal B: %
Proposal C: %
Proposal D: %
Compute the present value index for each of the proposals in part (4). If required, round your answers to two decimal places.Present value index (rounded) of Proposal B and Proposal D: