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The Borders and Noble partnership 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

The Borders and Noble partnership 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 Mary

Project Whutie

Project Sarah

Capital investment

$140,000

$175,000

$190,000

Annual net income:

 

 

 

Year 1

10,000

12,500

19,000

2

10,000

12,000

16,000

3

10,000

11,000

14,000

4

10,000

8,000

9,000

5

10,000

6,000

8,000

Total

$ 50,000

$ 49,500

$ 66,000

Depreciation is computed by the straight-line method with no salvage value. The company"s cost of capital is 12%. (Assume 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?

Jun 23 2020 View more View Less

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