Setup

Harmony Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, Harmony's management is finding it difficult to compare them. The details of each project are as follows:

Project $1$: Retooling Mahufacturing Facilit$1.$

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This project would require an initial investment of $$2,700,000.$ It would generate $$975,000$ in additional cash flow each year. The new machinery has a useful life of seven years and a salvage value of $$600,000.$

$\backslash$table$[[,,,,],[$Project $2$: Purchase Patent for New Product,,,,$]]$

The patent would cost $$8,200,000,$ which would be fully amortized over $10$ years. Production of this product would generate $$1,650,000$ of additional net income for Harmony.

$\backslash$table$[[,],[$Project $3$: Purchase a New Fleet of Delivery Vans,$],[$Harmony could purchase $10$ new delivery vans at a cost of $$25,000$ each. The fleet would have a useful life of $10$ years, and each,$],[$van would have a salvage value of $$2,500.$ Purchasing the fleet would allow Harmony to expand its delivery area resulting in$,],[$$$30,000$ of additional net income per year.,$]]$

$\backslash$table$[[$Project $3$: Purchase a New Fleet of Deliver$],[$Harmony could purchase $10$ new delivery$],[$van would have a salvage value of $$2,500.],[$$$30,000$ of additional net income per year.$]]$

Required

For each of the three options, determine:

Each project's accounting rate of return.

Each projects payback period.

Each projects net present value assuming the company uses a discount rate of $10\%.$

Present Value Template for Excel

Insert amounts in columns C $->$ G and PV$,$ FV$,$ RATE or PMT will be calculated in column B$.$

Don't type in the blue shaded cells as these contain the formulas.