P12-1A Compute annual rate of return, cash payback, and net present value U3 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 $160,000 Project Edge $175,000 Project Clayton $200,000 Capital investment Annual net income: Year 1 2 3 14,000 14,000 14,000 14,000 14,000 $70,000 18,000 17,000 16,000 12,000 9,000 $72,000 27,000 23,000 21,000 13,000 12,000 $96,000 4 5 Total Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.) 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.) (Hint: Use average annual net income in your computation.) (d) Rank the projects on each of the foregoing bases. Which project do you recommend? NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?". (a) Net income Depreciation Annual net cash flows Proiect Bono Value ? Investment Annual net cash flows Payback period in years $160,000 $46,000 3.48 ? Year 1 Project Edge Net Annual Cash Flow $53,000 52,000 51,000 47,000 44,000 2 3 Cumulative Net Cash Flow $53,000 105,000 156,000 203,000 247,000 4 5 Cash Payback Period: Capital investment Cumulative cash flow, year 3 Remaining cost to be recovered (a) Net cash flow, year 4 (b) Payback period, year 4 (a) = (b) Total cash payback period in years Value ? ? Value ? ? Year 1 Project Clayton Net Annual Cash Flow ? ? ? ? ? 2 3 4 Cumulative Net Cash Flow ? ? ? ? ? 5 Cash Payback Period: Capital investment Cumulative cash flow, year 3 Remaining cost to be recovered (a) Net cash flow, year 4 (6) Cash payback period, year 4 (a) = (b) Total cash payback period in years Value ? ? Value Value Value (b) Project Bong Item Net annual cash flows Capital investment Negative net present value Amount Value Years 1-5 15% PV Factor 3.35216 Present Value ? Value ? Project Edge Year 1 15% Discount Factor 0.86957 0.75614 0.65752 0.57175 0.49718 2 3 4 Cash Flow Value Value Value Value Value Value Present Value ? ? ? ? ? Project Clayton Cash Present Flow Value Value ? Value ? Value ? Value ? Value ? Value ? Value ? 5 Total Capital Investment Net present value Value ? ? (c) Project Bono Project Edge Project Clayton Value Value Average net income Value Original Investment Value at end of useful life Average investment Value Value Value Value Value Value ? ? ? Average net income (a) Average investment (b) Annual rate of return (a) = (b) Value Value Value Value ? Value Value ? ? (d) Project Bono Edge Clayton Cash Payback Value Value Value Net Present Value Value Value Value Annual Rate of Return Value Value Value Response