Problem 26-5A U3 Company is considering three long-term capital investment propo

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Problem 26-5A 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 $160,000 Project Edge $175,000 Project Clayton $200,000 Capital investment Annual net income Year 1 14,000 14,000 14,000 14,000 14,000 $70,000 18,000 17,000 16,000 12,000 9,000 $72,000 27,000 23,000 21,000 13,000 12,000 $96,000 2 4 Total year 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 Click here to view PV table. Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.) Project Bono Project Edge Project Clayton Compute the net present value for each project. (Round answers to 0 decimal places, e.g. 125. If the net present value is negative, use either a negative sign years years years preceding the number eg-45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Project Bono Project Edge Project Clayton Net present value Compute the annual rate of return for each project. (Hint: Use average annual net income in your computation.) (Round answers to 2 decimal places, e.g. 10.50.) Project Bono Project Edge Project Clayton Annual rate of return Rank the projects on each of the foregoing bases. Which project do you recommend? Annual Rate of Return Net Project Bono Edge Cash Payback Present Value The best proiect is

Explanation / Answer

the best project Clayton

Payback period Project Bono Project Edge Project Claton Year Particulars Cashflow Cumulative Cashflow Cashflow Cumulative Cashflow Cashflow Cumulative Cashflow 0 Initial Cost $ (160,000.00) $ (160,000.00) $     (175,000.00) $ (175,000.00) $ (200,000.00) $ (200,000.00) 1 Cashflow $      46,000.00 $ (114,000.00) $          53,000.00 $ (122,000.00) $      67,000.00 $ (133,000.00) 2 Cashflow $      46,000.00 $    (68,000.00) $          52,000.00 $    (70,000.00) $      63,000.00 $    (70,000.00) 3 Cashflow $      46,000.00 $    (22,000.00) $          51,000.00 $    (19,000.00) $      61,000.00 $      (9,000.00) 4 Cashflow $      46,000.00 $      24,000.00 $          47,000.00 $      28,000.00 $      53,000.00 $      44,000.00 5 Cashflow $      46,000.00 $      70,000.00 $          44,000.00 $      72,000.00 $      52,000.00 $      96,000.00 Payback period $ 3.48 $ 3.40 $ 3.17

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