Compute the cash payback period for each project

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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

$180,25

$206,000

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.)

Required -

Compute the cash payback period for each project.

Compute the net present value for each project.

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

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

Reference no: EM132437500

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