Compute the annual rate of return for each project

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Reference no: EM133040819

Question - The Borders and Noble partnership 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 Mary

Project Winnie

Project Sarah

Capital investment

$140,000

$175,000

$190,000

Annual net income (Profit):

Year 1

$10,000

$12,500

$19,000

Year 2

10,000

12,000

16,000

Year 3

10,000

11,000

14,000

Year 4

10,000

8,000

9,000

Year 5

10,000

6,000

8,000

TOTAL

$50,000

$49,500

$66,000

Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 12%. (Assume cash flows occur evenly throughout the year.)

REQUIRED -

1. Compute the cash payback period for each project.

2. Compute the net present value for each project.

3. Compute the annual rate of return for each project.

4. Rank the projects on each of the foregoing bases. Explain which project you recommend?

Reference no: EM133040819

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