ajenkins
May 24, 2010, 11:40 AM
The Three Stooges 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.
Project Moe Project Larry Project Curly
Capital investment $150,000 $160,000 $200,000
Annual net income:
Year 1 13,000 18,000 27,000
2 13,000 17,000 22,000
3 13,000 16,000 21,000
4 13,000 12,000 13,000
5 13,000
9,000
12,000
Total $65,000
$72,000
$95,000
Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.)
Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.)
Project Moe years
Project Larry years
Project Curly years
Compute the net present value for each project. (Round computations for 15% Discount Factor to 5 decimal places. Round answers to 0 decimal places, e.g. 125. If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Project Moe $
Project Larry $
Project Curly $
Compute the annual rate of return for each project. (Round answers to 2 decimal places, e.g. 10.50. Hint: Use average annual net income in your computation.)
Project Moe %
Project Larry %
Project Curly %
Rank the projects on each of the foregoing bases. Which project do you recommend?
LarryCurlyMoe
Project Moe Project Larry Project Curly
Capital investment $150,000 $160,000 $200,000
Annual net income:
Year 1 13,000 18,000 27,000
2 13,000 17,000 22,000
3 13,000 16,000 21,000
4 13,000 12,000 13,000
5 13,000
9,000
12,000
Total $65,000
$72,000
$95,000
Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.)
Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.)
Project Moe years
Project Larry years
Project Curly years
Compute the net present value for each project. (Round computations for 15% Discount Factor to 5 decimal places. Round answers to 0 decimal places, e.g. 125. If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Project Moe $
Project Larry $
Project Curly $
Compute the annual rate of return for each project. (Round answers to 2 decimal places, e.g. 10.50. Hint: Use average annual net income in your computation.)
Project Moe %
Project Larry %
Project Curly %
Rank the projects on each of the foregoing bases. Which project do you recommend?
LarryCurlyMoe