Reference no: EM131780136

Problem 26-1A 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.)

Project Bono		years
Project Edge		years
Project Clayton		years

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.)

Rank the projects on each of the foregoing bases. Which project do you recommend?

Project	Cash Payback	Net Present Value	Annual  Rate of Return
Bono	1   3   2	2   3  1	3   2  1
Edge	1   3   2	1   2   3	1   2   3
Clayton	1   3   2	1   2   3	1   2   3