See attached file.

Timmons Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.

Project

Brown Red Yellow

Capital investment

$190,000

$220,000

$250,000

Annual net income:

Year 1 25,000 20,000 26,000

2 16,000 20,000 24,000

3 13,000 20,000 23,000

4 10,000 20,000 17,000

5

8,000

20,000

20,000

Total

$72,000

$100,000

$110,000

Salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight-line method. The company's minimum rate of return is the company's cost of capital which is 12%.

Instructions

Compute the following and rank the projects for each category:

Compute the average annual rate of return for each project. (Round your answers to 1 decimal place.)

Brown % rank

Red % rank

Yellow % rank

Compute the cash payback period for each project. (Round your answers to 2 decimal places.)

Brown years rank

Red years rank

Yellow years rank

Compute the net present value for each project. (Round your answers to 0 decimal places.)

Brown $ rank

Red $ rank

Yellow $ rank

Which project do you recommend?

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