Problem 24-1A Depreciation is computed by the straight-line method with no salva

Question

Problem 24-1A

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.)

Problem 24-1A

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 $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%. (Assume that cash flows occur evenly throughout the year.)

Your answer is correct. Compute the cash payback period for each project. (Round answers to 2 decimal pl Project Bono Project Edge Project Clayton 48 years 40l years 17 years Your answer is correct. Compute the net present value for each project. (Round answers to 0 decimal place present value is negative, use either a negative sign preceding the number eg For calculation purposes, use 5 decimal places as displayed in the factor table Project Bono Project Edge Project Clayton Net present value 5801 731 Your answer is correct. Compute the annual rate of return for each project. (Hint: Use average annual net inco (Round answers to 2 decimal places, e.g. 10.50.) Project Bono Project Edge Project Clayton Annual rate of return ug% 46 % 3% x Your answer is incorrect. Try again Rank the projects on each of the foregoing bases. Which project do you recommend? Net Present Value Annual Rate of Return Project Cash Payback Bono Edge Clayton The best project is

Explanation / Answer

Rank the project :

The best project is Clayton.

Project Cash payback Net present value Annual rate of return Bono 3 2 2 Edge 2 3 3 Clayton 1 1 1

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