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 $191,860 $220,050 $251,050 Annual net income: Year 1 25,195 20,016 26,112 2 16,040 20,016 24,167 3 13,007 20,016 23,013 4 10,353 20,016 17,035 5 8,495 20,016 20,316 Total $ 73,090 $100,080 $110,643
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%. Project Brown Red Yellow

Compute the net present value for each project. (Round PV factor to 5 decimal places, e.g. 1.25356 and final answer to 0 decimal places, e.g. 1,255.
Project Brown Red Yellow Capital investment $191,860 $220,050 $251,050 Annual net income: Year 1 25,195 20,016 26,112 2 16,040 20,016 24,167 3 13,007 20,016 23,013 4 10,353 20,016 17,035 5 8,495 20,016 20,316 Total $ 73,090 $100,080 $110,643 Attempts: 2 of 5 used Compute the net present value for each project. (Round PV factor to 5 decimal places,e.g. 1.25356 and final answer to O decimal places, e.g. 1,255 Project Brown s Project Red Project Yellow Click if you would like to Show Work for this questions Open Show Work LINE TO TEXT LINE TO TEXT LINE TO TEXTLENE TO TEXT

Explanation / Answer

Net Present Value:

NPV FOR PROJECT RED = (20016 + 44010) * 3.6048 - 220050 = $10751

SO,

NET PRESENT VALUE

PROJECT BROWN $2405

PROJECT RED $10751

PROJECT YELLOW $11261

Discount Value 12% Net Income BROWN Cash flow (+annually depreciation 38372) BROWN Present Value BROWN Net Income YELLOW Cash flow (+annually depreciation 50210) YELLOW Present Value YELLOW Yr 0 1 191860 -191860 251050 -251050 Yr 1 0.8929 25195 63567 56759 26112 76322 68148 yr 2 0.7972 16040 54412 43377 24167 74377 59293 Yr 3 0.7118 13007 51379 36572 23013 73223 52120 Yr 4 0.6355 10353 48725 30965 17035 67245 42734 Yr 5 0.5674 8495 46867 26592 20316 70526 40016 NPV $2405 NPV $11261

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