Salvage value is expected to be zero at the end of each

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Reference no: EM13575154

Sanchez Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.

	Project
	Brown	Red	Yellow
Capital investment	$189,770	$219,020	$251,090
Annual net income:
Year 1	25,239	20,002	26,265
2	16,456	20,002	24,026
3	13,297	20,002	23,075
4	10,022	20,002	17,136
5	8,347	20,002	20,452
Total	$ 73,361	$100,010	$110,954

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%.

Compute the annual rate of return for each project. (Round answers to 1 decimal place, e.g. 10.5%.)

	Annual rate of return
Project Brown	15.5	%
Project Red	18.3	%
Project Yellow	17.7	%

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Compute the cash payback period for each project.

	Cash Payback
Project Brown		3.44 years
Project Red		years
Project Yellow		years

Reference no: EM13575154

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