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 $172,800 $189,000 $206,000 Annual net income: Year 1 15,120 19,440 29,160 2 15,120 18,360 24,840 3 15,120 17,280 22,680 4 15,120 12,960 14,040 5 15,120 9,720 12,960 Total $75,600 $77,760 $103,680 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.) Click here to view the factor table. (a) Correct answer iconYour answer is correct. Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.) Project Bono enter the cash payback period in years rounded to 2 decimal places 3.48 years Project Edge enter the cash payback period in years rounded to 2 decimal places 3.40 years Project Clayton enter the cash payback period in years rounded to 2 decimal places 3.10 years eTextbook and Media Attempts: 2 of 15 used (b) Your Answer Correct Answer Partially correct answer iconYour answer is partially correct. 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 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 $enter a dollar amount rounded to 0 decimal places 6263 $enter a dollar amount rounded to 0 decimal places 7895 $enter a dollar amount rounded to 0 decimal places 5634 eTextbook and Media Solution Attempts: 15 of 15 used (c) 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 enter percentages rounded to 2 decimal places % enter percentages rounded to 2 decimal places % enter percentages rounded to 2 decimal places %