Bensen Corporation 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.

Depreciation is computed by the straight-line method with no salvage value. The company’s cost of capital is 15%.

Instructions

(a) Compute the annual rate of return for each project. (Round to one decimal.)

(b) Compute the cash payback period for each project. (Round to two decimals.)

(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 do you recommend?

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Project Rac Project Roe $180,000 Project Ric $150,000 Capital investment Annual net income: $140,000 Year 1 13,000 18,000 17,000 13,000 12,000 9,000 27,000 22,000 16,000 13,000 12,000 13,000 13,000 13,000 2 3 13,000 $ 65,000 $ 69,000 $ 90,000 Total