Franklin Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, Franklin’s management is finding it difficult to compare them.

Project 1: Retooling Manufacturing Facility This project would require an initial investment of \($7,600,000\). 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.

Project 2: Purchase Patent for New Product The patent would cost \($7,500,000\), which would be fully amortized over 10 years. Production of this product would generate \($1,650,000\) additional annual net income for Franklin.

Project 3: Purchase a New Fleet of Delivery Vans Franklin 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 Franklin to expand its delivery area resulting in \($30,000\) of additional net income per year.

Required:

1. Determine each project’s accounting rate of return and compare the projects.

2. Determine each project’s payback period and compare the projects.

3. Using a discount rate of 10 percent, calculate the net present value of each project.

4. Determine the profitability index of each project and prioritize the projects for Franklin.