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Financial & Managerial Acct Terms 1 & 2- BV F09 / Problem 26-4A

P26-4A

Timmons Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.

Project

Brown   Red    Yellow  
   Capital investment

$190,000

$220,000

$250,000

Annual net income:
Year125,00020,00026,000
216,00020,00024,000
313,00020,00023,000
410,00020,00017,000
5

8,000

20,000

20,000

Total

$72,000

$100,000

$110,000

Salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight-line method. The company’s minimum rate of return is the company’s cost of capital which is 12%.

Instructions

Compute the following and rank the projects for each category:

Compute the average annual rate of return for each project. (Round your answers to 1 decimal place.)
Brown    %    rank 
Red    %    rank
Yellow    %    rank

Compute the cash payback period for each project. (Round your answers to 2 decimal places.)
Brown    years    rank
Red    years    rank
Yellow    years    rank

Compute the net present value for each project. (Round your answers to 0 decimal places.)
Brown    $    rank
Red    $    rank
Yellow    $    rank

Which project do you recommend?

Question Attempts: Unlimited


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