Salvage value is expected to be zero at the end of each

Reference no: EM13575034

Sanchez Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.

	Project
	Brown	Red	Yellow
Capital investment	$189,440	$218,020	$248,250
Annual net income:
Year 1	25,446	20,466	26,487
2	16,071	20,466	24,428
3	13,341	20,466	23,463
4	10,356	20,466	17,253
5	8,153	20,466	20,287
Total	$ 73,367	$102,330	$111,918

Salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight-line method. The company’s minimum rate of return is the company’s cost of capital which is 12%.

a) Compute the annual rate of return for each project. (Round answers to 1 decimal place, e.g. 10.5%.)

b) Compute the cash payback period for each project. (Round answers to 2 decimal place, e.g. 5.25.)

c) Compute the net present value for each project. (Round to nearest dollar.)

d) Rank the projects on each of the foregoing bases. Which project would you recommend?

Sanchez Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.

	Project
	Brown	Red	Yellow
Capital investment	$189,440	$218,020	$248,250
Annual net income:
Year 1	25,446	20,466	26,487
2	16,071	20,466	24,428
3	13,341	20,466	23,463
4	10,356	20,466	17,253
5	8,153	20,466	20,287
Total	$ 73,367	$102,330	$111,918

Salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight-line method. The company's minimum rate of return is the company's cost of capital which is 12%.

a) Compute the annual rate of return for each project. (Round answers to 1 decimal place, e.g. 10.5%.)

b) Compute the cash payback period for each project. (Round answers to 2 decimal place, e.g. 5.25.)

c) Compute the net present value for each project. (Round to nearest dollar.)

d) Rank the projects on each of the foregoing bases. Which project would you recommend?

Reference no: EM13575034

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