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# Problem 26-6A Name: Section: Score: 91% Key Code: [Key code here] Instructions Answers are entered in the cells with gray backgrounds. Cells with...

Capital rationing involving four proposals
Renaissance Capital Group 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
pro A \$720,000 1 \$76,000 \$220,000
2 76,000 220,000
3 76,000 220,000
4 36,000 180,000
5 36,000 180,000
=\$300,000 =\$1,020,000
pro B \$124,000 1 \$59,200 \$84,000
2 15,200 40,000
3 15,200 40,000
4 5,200 30,000
5 (4,800) 20,000
=\$90,000 =\$214,000
pro C \$300,000 1 \$20,000 \$80,000
2 20,000 80,000
3 20,000 80,000
4 0 60,000
5 0 60,000
=\$60,000 =\$360,000
pro D \$200,000 1 \$40,000 \$80,000
2 40,000 80,000
3 20,000 60,000
4 20,000 60,000
5 20,000 60,000
=\$140,000 =\$340,000
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.
1.) Compute the cash payback period for each of the four proposals.
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Problem 26-6A Name: Section: Score: 91% Key Code: [Key code here] Answers are entered in the cells with gray backgrounds. Cells with non-gray backgrounds are protected and cannot be edited. An asterisk (*) will appear to the right, immediately above, or immediately below an incorrect entry. The essay answer will not be graded. Enter a zero in cells you would otherwise leave blank. 1. Payback Period Proposal A: 3 -year, 4 -month cash payback period Net Cash Cumulative Year and Months Flow Net Cash Flows Year 1 full year \$220,000 \$149,651 * Year 2 full year 220,000 Year 3 full year 220,000 Year 4 4 months 60,000 Proposal B: 2 -year, 0 -month cash payback period Net Cash Cumulative Year and Months Flow Net Cash Flows Year 1 full year \$84,000 Year 2 full year 40,000 Year 3 N/A - - Year 4 N/A - - Proposal C: 4 -year, 0 -month cash payback period Net Cash Cumulative Year and Months Flow Net Cash Flows Year 1 full year \$80,000 Year 2 full year 80,000 Year 3 full year 80,000 Year 4 full year 60,000 Proposal D: 2 -year, 8 -month cash payback period Net Cash Cumulative Year and Months Flow Net Cash Flows Year 1 full year \$80,000 Year 2 full year 80,000 Year 3 8 months 40,000 Year 4 N/A - - 2. Average Rate of Return Instructions

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