A firm is considering the following projects to improve its production process.

Project First Cost Annual Benefit Life (years)

1 $175,000 $ 45,000 10

2 $250,000 $ 62,500 12

3 $125,000 $ 40,000 5

4 $ 75,000 $ 16,500 10

5 $375,000 $102,500 5

6 $200,000 $ 41,500 15

7 $500,000 $165,000 5

a. Calculate the rate of return for each project (use excel)

b. If the firm has a capital budget of $1,200,000, which projects should be accepted by the rate of return criteria? What is the firms opportunity cost of capital?