The Stenny and Homer partnership 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. Capital investment Annual net income: Year 1 2 3 4 5 Total Project Fix $142,500 $ 9,000 9,000 9,000 9,000 9,000 45,000 Project Mark $165,000 $12,500 12,000 11,000 8,000 6,000 $49,500 Project Crank $195,000 $ 19,000 15,000 14,000 9,000 8,000 $ 65,000 Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 12%. (Assume cash flows occur evenly throughout the year.) Instructions (a) Compute the net present value for each project. (b) Compute the annual rate of return for each project.

The Stenny and Homer partnership 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. Capital investment Annual net income: Year 1 2 3 4 5 Total Project Fix $142,500 $ 9,000 9,000 9,000 9,000 9,000 45,000 Project Mark $165,000 $12,500 12,000 11,000 8,000 6,000 $49,500 Project Crank $195,000 $ 19,000 15,000 14,000 9,000 8,000 $ 65,000 Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 12%. (Assume cash flows occur evenly throughout the year.) Instructions (a) Compute the net present value for each project. (b) Compute the annual rate of return for each project.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 10P: Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year...

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