CEO of XYZ Company are considering investing in three projects. The available resources would allow the CEO to select all, any or none of the projects if they found them worth the investment. The current after tax ROI of XYZ company using average Net Book Value of the assets is 16% and the companys target ROI is 12%. XYZ Companys tax rate is 35%.

Project Sales Year 1 before tax income Cost of investment Useful life Salvage value

1. $3,000,000 $600,000 $3,600,000 6 years $0

2. $1,800,000 $580,000 $2,400,000 5 years $400,000

3. $1,500,000 $380,000 $2,000,000 4 years $0

If the CEO is evaluated based on maintaining and improving the after tax ROI using average Net Book Value of assets, which of the three projects would the CEO accept? Show supporting calculations and explain the rationale for the answer.

If the CEO is evaluated based on residual income using the after tax income and average Net Book Value of the assets, which of the three projects would the CEO accept? Show supporting calculations and explain the rationale for the answer.

Which project is best for the company? Explain the rationale for the answer.