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:
Year
1
25,000
20,000
26,000
2
16,000
20,000
24,000
3
13,000
20,000
23,000
4
10,000
20,000
17,000
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