Part (b) (c) and (d) Will thumbs up for correct answers, thank you! annual rate
ID: 2530869 • Letter: P
Question
Part (b) (c) and (d)
Will thumbs up for correct answers, thank you!
annual rate vback, and net present valu 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 Clayton $200,000 Capital investment S160,000 S175,000 Annual net income: 1 14,000 2 14,000 3 14,000 4 14,000 5 14,000 S70,000 18,000 17,000 16,000 12,000 9,000 $72,000 27,000 23,000 21,000 13,000 12,000 $96,000 ear Total 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.) (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? NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a"?".Explanation / Answer
Lower the payback is better as it means investment will be recovered in less time
NPV should be positive as this means profit in terms of discounted cashflows.
Higher the annual return is better.
On basis of above 3, calyton is the best project.
Project Bono Amount Years PV Factor Present Value Net Annual Cash Flow 46,000 01-05 3.35216 1,54,199 Capital Investment -1,60,000 NPV -5,801 Edge Clayton Year CF PV CF PV 1 0.86957 53000 46087.21 67000 58261.19 2 0.75614 52000 39319.28 63000 47636.82 3 0.65752 51000 33533.52 61000 40108.72 4 0.57175 47000 26872.25 53000 30302.75 5 0.49718 44000 21875.92 52000 25853.36 Total 167688.18 202162.84 Capital Investment 175000 200000 NPV -7311.82 2162.84