Home Layout LADIS B H 1 N15 A D E P12-1A Compute annual rate of retum, cash prybuck, and net present value 2 Us Company is considering three long-term capital investment proposals. Each investment has a useful life 3 of 5 years. Relevant data on each project are as follows. 5 Project Bono Project Edge Project Clayton 6 Capital investment $160,000 $175,000 $200,000 7 Annual net income: 8 Year 1 14,000 18,000 27,000 2 14,000 17,000 23,000 10 3 14,000 16,000 21,000 4 14,000 12,000 13,000 12 5 14,000 9,000 12,000 13 Total $70,000 $72,000 $96,000 15 Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. 16 (Assume that cash flows occur evenly throughout the year.) 17 18 Instructions 19 (a) Compute the cash payback period for each project. (Round to two decimals.) 20 (b) Compute the net present value for each project. (Round to nearest dollar.) 21 (c) Compute the annual rate of return for each project. (Round to two decimals.) 22 (Hint: Use average annual net income in your computation.) 23 (d) Rank the projects on each of the foregoing bases. Which project do you recommend? 24 NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?". 25 X E G Investment Annual net cash flows Payback period in years Value Value ? Cumulative Net Cash Flow ? ? ? ? ? N15 A B -7 28 (a) Project Bono 29 Net income Value 30 Depreciation ? 31 Annual net cash flows ? 32 33 34 Project Edge 35 Net Annual 36 Year Cash Flow 37 1 ? 38 2 2 39 3 7 40 4 ? 41 5 ? 42 43 Cash Payback Period: 44 Capital investment Value 45 Cumulative cash flow, year 3 ? 46 Remaining cost to be recovered (a) ? 47 Net cash flow, year 4 (b) Value 48 Payback period, year 4 (a) + (b) ? 49 Total cash payback period in years 50 51 52 Project Clayton 53 Net Annual 54 Year Cash Flow 55 1 ? 56 2 ? 57 3 ? 58 4 2 59 5 ? 60 61 Cash Payback Period: 62 Capital investment Value 63 Cumulative cash flow, year 3 ? 64 Remaining cost to be recovered (a) ? 65 Net cash flow, year 4 (b) Value 66 Cash payback period, year 4 (a) (b) Value 67 Total cash payback period in years Value 68 69 Cumulative Net Cash Flow ? ? ? ? ? Tables Charts FOTO SI ATLAN A Home N16 Layout . X D E G H B Amount Value Years 1-5 15% PV Factor 3.35216 Project Bono Item Net annual cash flows Capital investment Negative net present value Present Value ? Value 7 Project Edge A 68 69 70 (b) 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 Year 1 2 3 4 1596 Discount Factor 0.86957 0.75614 0.65752 0.57175 0.49718 Cash Flow Value Value Value Value Value Value Present Value ? 7 ? ? 2 ? Project Clayton Cash Present Flow Value Value 2 Value ? Value ? Value Value ? Value 7 Value 7 Walue Total Capital Investment Net present value 7 Project Bono Value Project Edge Project Clayton Value Value Average net income Value Value NA? Original Investment Value at end of useful life Average investment Value Value ? Value Value 87 88 89 90 (c) 91 92 93 94 95 96 97 98 99 100 101 102 103 (d) 104 105 106 107 108 109 Value Value Value Value Average net income (a) Average investment (b) Annual rate of return (a) (b) Value Value ? Project Cash Payback Value Value Value Bono Edge Clayton Net Present Value Value Value Value Annual Rate of Retum Value Value Value Rasponso