70.2K

Verified Solution

Link Copied!

U3 Company is considering three long-term capital investmentproposals. Each investment has a useful life of 5 years. Relevantdata on each project are as follows. Project Bono Project EdgeProject Clayton Capital investment $164,800 $180,250 $204,000Annual net income: Year 1 14,420 18,540 27,810 2 14,420 17,51023,690 3 14,420 16,480 21,630 4 14,420 12,360 13,390 5 14,420 9,27012,360 Total $72,100 $74,160 $98,880 Depreciation is computed bythe straight-line method with no salvage value. The company’s costof capital is 15%. (Assume that cash flows occur evenly throughoutthe year.)

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

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

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		ProjectClayton
Annual rate of return		enter a percentage number roundedto 2 decimal places %		enter a percentage number roundedto 2 decimal places %		enter a percentage number roundedto 2 decimal places %

eTextbook and Media

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

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

The best project is select the bestproject                                                                 BonoClaytonEdge.