Problem 12-1A U3 Company is considering three long-term capital investment propo

Question

Problem 12-1A 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 Project Bono $171,200 Project Edge $187,250 Project Clayton $202,000 Capital investment Annual net income: Year 1 2 3 4 14,980 14,980 14,980 14,980 14,980 $74,900 19,260 18,190 17,120 12,840 9,630 $77,040 28,890 24,610 22,470 13,910 12,840 $102,720 Total year) 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 ick her ew able

Explanation / Answer

calculate annual rate of return :

Project Bono Project edge Project Clayton Total net income 74900 77040 102720 Average net income 14980 15408 20544 Average investment 85600 93625 101000 Annual rate of return 17.5% 16.5% 20.3%

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