Solution-Compute the cash payback period for each project

Compute the cash payback period for each project

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Reference no: EM132437500

Question - 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	$164,800	$180,25	$206,000
Annual net income:
Year 1	14,420	18,540	27,810
2	14,420	17,510	23,690
3	14,420	16,480	21,630
4	14,420	12,360	13,390
5	14,420	9,270	12,360
Total	$72,100	$74,160	$98,880

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.)

Required -

Compute the cash payback period for each project.

Compute the net present value for each project.

Compute the annual rate of return for each project. (Hint: Use average annual net income in your computation.)

Rank the projects on each of the foregoing bases. Which project do you recommend?

Reference no: EM132437500

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Compute the cash payback period for each project

Reference no: EM132437500

Reference no: EM132437500

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