Crane 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		$168,000		$183,750		$210,000
Annual net income:
Year 1		14,700		18,900		28,350
2		14,700		17,850		24,150
3		14,700		16,800		22,050
4		14,700		12,600		13,650
5		14,700		9,450		12,600
Total		$73,500		$75,600		$100,800

Depreciation is computed by the straight-line method with no salvage value. The companys cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.) Click here to view PV table.

(a)

Correct answer icon

Your answer is correct.

Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.)

Project Bono		enter the cash payback period in years rounded to 2 decimal places	years
Project Edge		enter the cash payback period in years rounded to 2 decimal places	years
Project Clayton		enter the cash payback period in years rounded to 2 decimal places	years

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Attempts: 1 of 2 used

(b)

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Your answer is correct.

Compute the net present value for each project. (Round answers to 0 decimal places, e.g. 125. If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

		Project Bono		Project Edge		Project Clayton
Net present value		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places

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Attempts: 1 of 2 used

(c)

Incorrect answer icon

Your answer is incorrect.

Compute the annual rate of return for each project. (Hint: Use average annual net income in your computation.) (Round answers to 2 decimal places, e.g. 10.50%.)

		Project Bono		Project Edge		Project Clayton
Annual rate of return		enter percentages rounded to 2 decimal places %		enter percentages rounded to 2 decimal places %		enter percentages rounded to 2 decimal places %

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Solution

Attempts: 2 of 2 used

(d)

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

Project		Cash Payback		Net Present Value		Annual Rate of Return
Bono		select a ranking number 132		select a ranking number 231		select a ranking number 321
Edge		select a ranking number 132		select a ranking number 123		select a ranking number 123
Clayton		select a ranking number 132		select a ranking number 123		select a ranking number 123

The best project is select a project BonoEdgeClayton.