U3 Company is considering three long-term capital investment proposals. Each inv
ID: 2478217 • Letter: U
Question
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
$180,250
$204,000
Annual net income:
Year 1
14,420
18,540
27,810
2
14,420
17,510
23,690
3
14,420
16,480
21,630
4
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.)
Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.)
Compute the net present value for each project. (Round answers to 0 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.)
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
Capital investment
$164,800
$180,250
$204,000
Annual net income:
Year 1
14,420
18,540
27,810
2
14,420
17,510
23,690
3
14,420
16,480
21,630
4
14,420
12,360
13,390
5
14,420
9,270
12,360
Total
$72,100
$74,160
$98,880
Explanation / Answer
Project Bono Project Edge Project Clayton Capital investment ($164,800) ($180,250) ($204,000) Annual net income: Year 1 14,420 18,540 27,810 2 14,420 17,510 23,690 3 14,420 16,480 21,630 4 14,420 12,360 13,390 5 14,420 9,720 12,360 Total $72,100 $74,610 $98,880 payback NA NA NA NPV ($116,461.92) ($128,152.89) ($133,881.39) ARR total net income after dep ($92,700) ($105,640) ($105,120) average income ($18,540) ($21,128) ($21,024) ARR -11.25% -11.72% -10.31%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.