U3 company is considering the three long-term capital investment proposals. Each

Question

U3 company is considering the three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows. 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 evently throghout the year.) Compute the cash payback period for each project.(Round answers to 2 decimal places, e.g. 10.50) Project Bono___years Project Edge____years Project Clayton___years

Explanation / Answer

Payback Bano Annual Net Income 14700 Add depreciation =168000/5 33600 Net Cash Inflow 48300 Payback Bano =168000/48300 3.48 Project Edge Cash Inflow =Depreciation+Net Income Depreciation =183750/5 =36750 Cash Flow Cumlative Cash flow 0 -183750 -183750 1 55650 -128100 2 54600 -73500 3 53550 -19950 4 49350 29400 5 46200 75600 Payback Edge =19550/49350 +3 3.40 Project Edge Cash Inflow =Depreciation+Net Income Depreciation =202000/5 =40400 Cash Flow Cumlative Cash flow 0 -202000 -202000 1 68750 -133250 2 64550 -68700 3 62450 -6250 4 54050 47800 5 53000 100800 Payback Cayton =6250/54050 +3 3.12

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