In: Accounting
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 | $176,000 | $192,500 | $212,000 | ||||
Annual net income: | |||||||
Year 1 | 15,400 | 19,800 | 29,700 | ||||
2 | 15,400 | 18,700 | 25,300 | ||||
3 | 15,400 | 17,600 | 23,100 | ||||
4 | 15,400 | 13,200 | 14,300 | ||||
5 | 15,400 | 9,900 | 13,200 | ||||
Total | $77,000 | $79,200 | $105,600 |
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 answers to 2 decimal places, e.g.
10.50.)
Project Bono | enter the cash payback period in years rounded to 2 decimal places | years | |
---|---|---|---|
Project Edge | enter the cash payback period in years rounded to 2 decimal places | years | |
Project Clayton | enter the cash payback period in years rounded to 2 decimal places |
year |
B.) Compute the net present value for each project.