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