U3 Company 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 Bono Project Edge Project Clayton
Capital investment $164,800 $180,250 $204,000
Annual net income:
Year 1 14,420 18,540 27,810
2 14,420 17,510 23,690
3 14,420 16,480 21,630
4 14,420 12,360 13,390
5 14,420 9,270 12,360
Total $72,100 $74,160 $98,880
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).
1. Compute the cash payback period for each project.
2. Compute the present value for each project.