Sanchez Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.
|
|
Project
|
|
|
Brown
|
|
Red
|
|
Yellow
|
Capital investment |
|
$189,770 |
|
$219,020 |
|
$251,090 |
Annual net income: |
|
|
|
|
|
|
Year 1 |
|
25,239 |
|
20,002 |
|
26,265 |
2 |
|
16,456 |
|
20,002 |
|
24,026 |
3 |
|
13,297 |
|
20,002 |
|
23,075 |
4 |
|
10,022 |
|
20,002 |
|
17,136 |
5 |
|
8,347 |
|
20,002 |
|
20,452 |
Total |
|
$ 73,361 |
|
$100,010 |
|
$110,954 |
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%.
Compute the annual rate of return for each project. (Round answers to 1 decimal place, e.g. 10.5%.)
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Compute the cash payback period for each project.