Depreciation is computed by the straight-line method with no salvage value. The compar 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. [Note: For this math, students must show the calculation to get points. Only writing/provi

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Nn.193.

Subject :- Account ........

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.
[Note: For this math, students must show the calculation to get points. Only writing/providing
answers will not be graded]
Transcribed Image Text: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. [Note: For this math, students must show the calculation to get points. Only writing/providing answers will not be graded]
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