Question

In: Finance

Ace Company is considering three long-term capital investment proposals. Each investment has a useful life of...

  1. Ace 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

$160,000

$175,000

$200,000

Annual net income:

Year 1      

  14,000

  18,000

  27,000

2      

  14,000

  17,000

  23,000

3      

  14,000

  16,000

  21,000

4      

  14,000

  12,000

  13,000

5      

  14,000

   9,000

  12,000

Total      

$ 70,000

$ 72,000

$ 96,000

Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%.

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.)

c.  

Compute the annual rate of return for each project. (Round to two decimals.)

d.  

Rank the projects on each of the foregoing bases. Which project do you recommend?

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