Compute the cash payback period

Reference no: EM1368623

The Three Stooges 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 Moe Project Larry Project Curly
Capital investment $150,000 $160,000 $200,000
Annual net income:
Year 1 13,000 18,000 27,000
2 13,000 17,000 22,000
3 13,000 16,000 21,000
4 13,000 12,000 13,000
5 13,000 9,000 12,000
Total $ 65,000 $ 72,000 $ 95,000

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.)
Hint:
Compute annual rate of return, cash payback, and net present value.

Instructions

(a) Compute the cash payback period for each project. (Round to two decimals.)

(b) Compute the net present value for each project. (Round to nearest dollar.)

(c) Compute the annual rate of return for each project. (Round to two decimals.) (Hint: Use average annual net income in your computation.)

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

Reference no: EM1368623

Questions Cloud

Show the consumer expectations : Consumer expectations - Compare and contrast Ford and Toyota and discuss how and why one organization kept pace

Calculate the payback period for an asset : Calculate the payback period for an asset that has a first cost of $40,000, a salvage value of $8000 anytime within ten-years of its purchase, and generates income of $6000 per year.

Explain what impact might your recommendation have on eurest : Explain What impact might your recommendation have on Eurest's employees, customers, and business and government partners

Value of server farms-virtualization to large organization : Describe at lease 750 words(in your own words) what is meant by "server farm" and by "virtualization". What is the value of server farms and virtualization to large organization?

Compute the cash payback period : The 3-Stooges partnership is planning three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows.

Explain and review the amount of taxable interest : Explain and Review the amount of taxable interest on line 8a and all tax-exempt interest goes on line 8b

Question on merger : The Clark Corporation wants to expand. It is planning a cash purchase of Kent enterprises for $3 million. Kent has a $700,000 tax loss carryforard that could be used immediately

Which information in computer critical to personal life : Let the information stored in the personal computer. Do you, at this moment, have information stored in your computer that is critical to your personal life?

Explain boiling springs savings bank did a background check : Explain Boiling Springs Savings Bank did a background check on Perimeter before hiring it. Search the Web for sources that can help an organization

User Account

All Pages