Problem - 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 $180,250 $204,000
Annual net income:
Year 1 14420 18540 27810
Year 2 14420 17510 23690
Year 3 14420 16480 21630
Year 4 14420 12360 13390
Year 5 14420 9270 12360
Total 72100 74160 98880
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.)
(a) Compute the cash payback period for each project.
(b) Compute the net present value for each project.
(c) Compute the annual rate of return for each project.