Compute the net present value for each project

Question

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?