In: Finance
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?