The Three Stages partnership is considering three long-term capital investment proposals. Each investment has a useful life
Question:
The Three Stages partnership is considering three long-term capital investment proposals. Each investment has a useful life of five years. Relevant data on each project are as follows:
Project Main | Project Odyssey | Project Duo | |||||||
Capital investment: | $163,500 | $174,400 | $204,000 | ||||||
Annual net income: | |||||||||
Year 1 | $14,170 | $19,620 | $29,430 | ||||||
2 | 14,170 | 18,530 | 23,980 | ||||||
3 | 14,170 | 17,440 | 22,890 | ||||||
4 | 14,170 | 13,080 | 14,170 | ||||||
5 | 14,170 | 9,810 | 13,080 | ||||||
Total | $70,850 | $78,480 | $103,550 |
Depreciation is calculated by the straight-line method and there is no salvage value. The company’s cost of capital is 15%. (Use average net annual cash flows in your calculations.)
(a)
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Calculate the cash payback period for each project. (Round answers to 2 decimal places, e.g. 15.25.)
Payback period | |||
Project Main | 3.49 | years | |
Project Odyssey | 3.30 | years | |
Project Duo | 3.10 | years |
(b)
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Calculate the net present value for each project. (If the answer is negative, use either a negative sign preceding the number e.g. -5,275 or parentheses e.g. (5,275). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.)
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Net present value | ||
Project Main | $ 6384 | |
Project Odyssey | $ 2581 | |
Project Duo | $ 6147 |
(c)
Calculate the annual rate of return for each project. (Round answers to 2 decimal places, e.g. 15.25%.)
Annual rate of return | |||
Project Main | % | ||
Project Odyssey | % | ||
Project Duo | % |
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling