P12-A Compute annual rate of retun cash payb ack and net present value 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 Edge $175,000 Project Bono Project Clayton $200,000 Capital investment $160,000 Annual net income: 14,000 2 14,000 3 14,000 4 14,000 5 14,000 27,000 23,000 21,000 13,000 12,000 $96,000 Year 18,000 17,000 16,000 12,000 9,000 Total S70,000$72,000 Depreciation is computed by the straight-line method with no salvage value. The company's cost or capital is 15%. (Assume that cash flows occur evenly throughout the year.) Instructions 9 (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.) 2 (d) Rank the projects on each of the foregoing bases. Which project do you recommend? 2NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" 25 28 a (a) Project Bonc Value Investment Value Value Net income Depreciation Annual net cash flows Annual net cash flows Payback period in years 30 2 Project Edge Net AnnualCumulative Cash Flow Net Cash Flovw Year 12 Value 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 49 Net Annual Cash Flow Cumulative Net Cash Flow Year Capital investment Cumulative cash flow, year 3 Remaining cost to be recovered (a) Net cash flow, year 4 (b) Cash payback penod, year 4 (a)+Value Total cash payback period in years Value Value 15% Present PV Factor Value (b) Proiect Bono Years 1-5 item Amount 3.35216? Net annual cash flows Capital investment Negative net present value Value Project Edge 15% Discount Factor 0.86957 0.75614 0.65752 .57175 Project Clayton Cash Present Flow Value Value Value Value Value Value 78 Present Value Cash Flow Value Value Value Value Year Value 79 0.49718 Total Capital Investment Net present value Value Value Value 0 (c) Project Bono Value Project Edge Project Clayton Average net income Value Value Original Investment Value at end of useful life Average investment Value Value Average net income (a) Average investment (b) Annual rate of return (a) (b) Value Net Annual Rate of Return Project Cash Payback Present Value Response