Multichoice Company Has Three Mutually Exclusive Proposals from Which to Choose

Essay

Multichoice Company has three mutually exclusive proposals from which to choose. One must be selected. The following information about the three proposals is available:
$\begin{array}{cccc}& \text { Investment } & \text { Annual Net } & \text { Expected } \\ \underline{\text { Proposal }} & \underline{\text { Required} } & \underline{ \text { Cash Inflows }} & \underline{ \text { Life} }\\\mathrm{X} & \$ 48000 & \$ 8000 & 10 \text { yrs. } \\\mathrm{Y} & 50000 & 8000 & 10 \text { yrs. } \\\mathrm{Z} & 86000 & 15000 & 10 \text { yrs. }\end{array}$
Required:
(1) Using the payback period, rank order the three proposals from most attractive to least attractive.
(2) Order the proposals from most attractive to least attractive using the net present value method. Assume the business' cost of capital is 12%.
(3) Which method, payback period or net present value, would you recommend using?