Solution-Compute the annual rate of return for each project

Compute the annual rate of return for each project

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Reference no: EM133040819

Question - The Borders and Noble partnership 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 Mary	Project Winnie	Project Sarah
Capital investment	$140,000	$175,000	$190,000
Annual net income (Profit):
Year 1	$10,000	$12,500	$19,000
Year 2	10,000	12,000	16,000
Year 3	10,000	11,000	14,000
Year 4	10,000	8,000	9,000
Year 5	10,000	6,000	8,000
TOTAL	$50,000	$49,500	$66,000

Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 12%. (Assume cash flows occur evenly throughout the year.)

REQUIRED -

1. Compute the cash payback period for each project.

2. Compute the net present value for each project.

3. Compute the annual rate of return for each project.

4. Rank the projects on each of the foregoing bases. Explain which project you recommend?

Reference no: EM133040819

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Compute the annual rate of return for each project

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Reference no: EM133040819

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