Sanchez Corporation is considering three long-term capital investment proposals.

Question

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

Project Brown Red Yellow Capital investment $189,300 $219,640 $251,520 Annual net income: Year 1 25,067 20,324 26,078 2 16,310 20,324 24,382 3 13,499 20,324 23,278 4 10,190 20,324 17,340 5 8,125 20,324 20,419 Total $ 73,191 $101,620 $111,497
Salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight-line method. The company Sanchez Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.

Project Brown Red Yellow Capital investment $189,300 $219,640 $251,520 Annual net income: Year 1 25,067 20,324 26,078 2 16,310 20,324 24,382 3 13,499 20,324 23,278 4 10,190 20,324 17,340 5 8,125 20,324 20,419 Total $ 73,191 $101,620 $111,497
Salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight-line method. The company Sanchez Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.

Project Brown Red Yellow Capital investment $189,300 $219,640 $251,520 Annual net income: Year 1 25,067 20,324 26,078 2 16,310 20,324 24,382 3 13,499 20,324 23,278 4 10,190 20,324 17,340 5 8,125 20,324 20,419 Total $ 73,191 $101,620 $111,497
Salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight-line method. The company Project Brown Red Yellow Sanchez Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.

Project Brown Red Yellow Capital investment $189,300 $219,640 $251,520 Annual net income: Year 1 25,067 20,324 26,078 2 16,310 20,324 24,382 3 13,499 20,324 23,278 4 10,190 20,324 17,340 5 8,125 20,324 20,419 Total $ 73,191 $101,620 $111,497
Salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight-line method. The company Sanchez Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows. 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 annual rate of return for each project. (Round answers to 1 decimal place, e.g. 10.5%.)

Explanation / Answer

Hi,

Please find the answer as follows:

ARR = Average Income/Average Investment*100

Project Brown

Average Income = (25067+16310+13499+10190+8125)/5 = 14638.20

Average Investment = 189300/2 = 94650

ARR = 14638.20/94650*100 = 15.5%

Project Red

Average Income = 20324

Average Investment = 219640/2 = 109820

ARR = 20324/109820*100 = 18.5%

Project Yellow

Average Income = (26078+24382+23278+17340+20419)/5 = 22299.40

Average Investment = 251520/2 = 125760

ARR = 22299.40/125760*100 = 17.7%

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.