A firm is considering two alternative proposals for modernizingits production facilities. To provide a basis for selection, thecost accounting department has developed the following dataregarding the expected operating results for the two proposals:
proposal 1 proposal 2
required investment inequipment.......................................... $ 360,000 $350,000
estimated service life ofequipment....................................... 8 years 7years
estimated salvagevalue...................................................... $ 0 $14,000
estimated annual cost savings (net cashflow)...................... 75,000 76,000
depreciation on equipment ( straight-linebasis)..................... 45,000 48,000
estimated increase in annual netincome............................. 30,000 28,000
a. For each proposal, compute the: payback peroid, return on average investment and net present value, discounted at an annualrate of 12%.