P24-1A 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. Compute annual rate of re cash payback, and net pres value. Capital investment Annual net income: Year 1 Project Bono $160,000 Project Edge $175,000 Project Clayton $200,000 (LO 1, 2, 5), AN 14,000 14,000 14,000 14,000 14,000 18,000 17,000 16,000 12,000 9,000 27,000 23,000 21,000 13,000 12,000 2 EXLS 3 4 5 Total $ 70,000 $ 72,000 $ 96,000 Depreciation is computed by the straight-line method with no salvage value. The com- pany's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.) 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.) (b) E $(7,312); C $2,163 24 Planning for Capital Investments (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?

P24-1A 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. Compute annual rate of re cash payback, and net pres value. Capital investment Annual net income: Year 1 Project Bono $160,000 Project Edge $175,000 Project Clayton $200,000 (LO 1, 2, 5), AN 14,000 14,000 14,000 14,000 14,000 18,000 17,000 16,000 12,000 9,000 27,000 23,000 21,000 13,000 12,000 2 EXLS 3 4 5 Total $ 70,000 $ 72,000 $ 96,000 Depreciation is computed by the straight-line method with no salvage value. The com- pany's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.) 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.) (b) E $(7,312); C $2,163 24 Planning for Capital Investments (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?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter16: The Markets For Labor, Capital, And Land

Section: Chapter Questions

Problem 12P

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