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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

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 Project Edge Project Clayton
Capital investment $ 164,800 $ 180,250 $ 204,000
Annual net income:
Year 1 14,420 18,540 27,810
2 14,420 17,510 23,690
3 14,420 16,480 21,630
4 14,420 12,360 13,390
5 14,420 9,270 12,360
Total $ 72,100 $ 74,160 $ 98,880

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.) Make sure to view the PV table for this.

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 for the project rounded to 2 decimal places years
Project Edge ___________________ enter the cash payback period in years for the project rounded to 2 decimal places years
Project Clayton _________________ enter the cash payback period in years for the project rounded to 2 decimal places years

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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 $ _________ $ __________ $ _____________

eTextbook and Media

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 _________ % __________ % _______________ %

eTextbook and Media

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 rank of the project select a rank of the project 1 3 2 select a rank of the project select a rank of the project 2 3 1 select a rank of the project select a rank of the project 3 2 1
Edge select a rank of the project select a rank of the project 1 3 2 select a rank of the project select a rank of the project 1 2 3 select a rank of the project select a rank of the project 1 2 3
Clayton select a rank of the project select a rank of the project 1 3 2 select a rank of the project select a rank of the project 1 2 3 select a rank of the project select a rank of the project 1 2 3

The best project is select the best project select the best project Edge,Clayton, or Bono?

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