Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. p3. u3 company is considering three long-term capi

P3. U3 Company is considering three long-term capital investment proposals. Each investment has a useful...

80.2K

Verified Solution

Question

Accounting

P3. U3 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 A Project B Project C Capital Investment $60,000 $65,000 $70,000 Net Income Year 1 18,000 26,000 27,000 Net Income Year 2 18,000 23,000 22,000 Net Income Year 3 18,000 21,000 21,000 Net Income Year 4 18,000 19,000 20,000 Net Income Year 5 18,000 16,000 20,000 Total income 90,000 105,000 110,000 Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 12%. (Assume that cash flows occur evenly throughout the year.) Instructions a. Compute the cash payback period for each project. (Round to two decimals.) b. Compute the net present value for each project. (Round to nearest dollar.) c. Compute the profitability index for each project d. Compute the annual rate of return for each project. (Round to two decimals.) (Hint: Use average annual net income in your computation.) e. Rank the projects on each of the foregoing bases. Which project do you recommend?

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students