Company is considering three long-term capital investment proposals. Each investment has a useful life of...
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Accounting
Company 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 Kilo | Project Lima | Project Oscar | |||||
|---|---|---|---|---|---|---|---|
| Capital investment | $166,000 | $178,000 | $204,000 | ||||
| Annual net income: | |||||||
| Year 1 | 14,420 | 18,540 | 27,810 | ||||
| 2 | 14,420 | 17,510 | 23,690 | ||||
| 3 | 14,420 | 16,480 | 21,630 | ||||
| 4 | 14,420 | 12,360 | 13,390 | ||||
| 5 | 14,420 | 9,270 | 12,360 | ||||
| Total | $72,100 | $74,160 | $98,880 | ||||
Depreciation is computed by the straight-line method with no salvage value. The companys cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.)
Compute the annual rate of return for each project. (Hint: Use average annual net income in your computation.) (Round answers to 2 decimal places, e.g. 10.50%.)
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