The Bell and Howell partnership 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%. (Use average annual cash flows in your computations.)

Instructions

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

(b) Compute the net present value for each project. (Round to nearest dollar.)

(c) Compute the annual rate of return for each project. (Round to two decimals I

(d) Rank the projects on each of the foregoing bases. Which project do you recommend?

Transcribed Image Text:

Capital investment Annual net income: Project Tic $130,000 Project Tac Project Toe $150,000 $180,000 Year 1 2 11,000 17,000 24,000 11,000 16,000 20,000 3 11,000 15,000 19,000 4 11,000 11,000 16,000 11,000 8,000 11,000 Total $ 55,000 $ 67,000 $ 90,000