Dinkel Company is considering three long-term capital investment proposals. Each
ID: 2348399 • Letter: D
Question
Dinkel 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.
13,000
9,000
12,000
$65,000
$72,000
$95,000
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.)
Compute the annual rate of return for each project. (Round answers to 2 decimal places, e.g. 10.50. Hint: Use average annual net income in your computation.)
Project Granada Project Jackson Project Dorantes Capital investment $150,000 $160,000 $200,000 Annual net income:
Year 1 13,000 18,000 27,000 2 13,000 17,000 22,000
3 13,000 16,000 21,000
4 13,000 12,000 13,000
5
13,000
9,000
12,000
Total$65,000
$72,000
$95,000
Explanation / Answer
Project Granada Annual Rate of return = 13000/(150000 + 0/2) = 17.33% Project Jackson Annual Rate of return = (72000/5)/(160000/2) = 18.00% Project Dorantas Annual rate of return = (95000/5)/(200000/2) = 19.00% Hope this helps!
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.