Question

Problem 25-01A a-d (Video) (Part Level Submission) Bramble 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 $174,400 Project Edge $190,750 Project Clayton $218,000 Capital investment Annual net income: Year 1 29,430 25,070 22,890 14,170 13,080 $104,640 15,260 15,260 15,260 15,260 15,260 $76,300 19,620 18,530 17,440 13,080 9,810 $78,480 Total 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.) Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.) Project Bono Project Edge Project Clayton years years years

Answer 1

Answers 3.48 Years 3.40 Years 3.17 Years Project Bono Project Edge Project Clayton Project Edge Project Bono Project Clayton Cash Flows 0 Cumulative CF Cash Flows Cumulative CF Cash Flows Cumulative CF 218000 -144970 -76300 9810 47960 104640 Year 174400 50140 50140 50140 50140 50140 3+(23980/50 174400 124260 74120 23980 26160 76300 190750 57770 56680 55590 51230 47960 3+(20710/51 190750 132980 76300 20710 30520 78480 218000 73030 68670 66490 57770 56680 3+(9810/577 3 4 5 Pay Back Period 3.404255319 230) 140) 3.478 70) 3.169811321

Calculation of Annual Cash Flows (Annual Cash flows Net income +Depreciation) Project Edge Project Clayton Project Bono Year Net Income Depreciation Net Income Depreciation Net Income Depreciation 38150 38150 38150 38150 38150 29430 25070 22890 14170 13080 19620 18530 17440 13080 9810 43600 43600 43600 43600 43600 15260 15260 15260 15260 15260 34880 34880 34880 34880 34880 2 3 4 Depreciation (investment /Life ) Project Bono(174400/5) Project Edge (190750/5) Project Clayton (218000/5) 34880 38150 43600

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