P$5\mathrm{.}35$B $($LO $1,2,5)$ An icon reads, Excel. The partnership of Lou and Bud is considering three long$-$term capital investment proposals. Relevant data on each project are as follows:

Project Brown

Project Red

Project Yellow

Capital investment:

$$140,000$

$$170,000$

$$190,000$

Annual net income:

Year $1$

$$9,000$

$$12,500$

$$19,000$

$2$

$9,000$

$12,000$

$15,000$

$3$

$9,000$

$11,000$

$14,000$

$4$

$9,000$

$8,000$

$9,000$

$5$

$9,000$

$6,000$

$8,000$

Total

$$45,000$

$$49,500$

$$65,000$

The salvage value is expected to be zero at the end of each project. Depreciation is calculated by the straight$-$line method. The company$$s required rate of return is the company$$s cost of capital, which is $12\%.($Use average net annual cash flows in your calculations.$)$

Instructions

Calculate the cash payback period for each project. $($Round to two decimals.$)$

a$.$ Project Brown: $3\mathrm{.}78$ years Project Red: $3\mathrm{.}87$ years Project Yellow: $3\mathrm{.}73$ years

Calculate the net present value for each project. $($Round to the nearest dollar.$)$

Calculate the average annual rate of return for each project. $($Round to two decimals.$)($Hint: Use average annual net income in your calculation.$)$

Rank the projects based on each of your answers in parts $($a$),($b$),$ and $($c$).$ Which project do you recommend?