U3 Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows.
Project Bono Project Edge Project Clayton
Capital investment
$164,800
$180,25
$206,000
Annual net income:
Year 1
14,420
18,540
27,810
14,420
17,510
23,690
A W
14,420
16,480
21,630
14,420
12,360
13,390
5
14,420
9,270
12,360
Total
$72,100
$74,160
$98,880
Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.)
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Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.)
Project Bono
years
Project Edge
years
Project Clayton
years
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Compute the net present value for each project. (Round answers to O decimal places, e.g. 125. If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Project Bono
Project Edge
Project Clayton
Net present value $
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Compute the annual rate of return for each project. (Hint: Use average annual net income in your computation.) (Round answers to 2 decimal places, e.g. 10.50.)
Project Bono
Project Edge
Project Clayton
Annual rate of return
%
%
%
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Rank the projects on each of the foregoing bases. Which project do you recommend?
Net
Annual
Project Cash Payback Present Value
e Rate of Return
Bono
Edge
Clayton
The best project is