Part A Part b Part cSolution Answer a Calculation of Cash pa

Solution

Answer a Calculation of Cash payback period Year Project Kilo Project Lima Project Oscar Cash flow Cumulative Cash flows Cash flow Cumulative Cash flows Cash flow Cumulative Cash flows 0 -$164,300.00 -$164,300.00 -$174,900.00 -$174,900.00 -$208,650.00 -$208,650.00 1 $46,640.00 -$117,660.00 $53,530.00 -$121,370.00 $70,880.00 -$137,770.00 2 $46,640.00 -$71,020.00 $52,470.00 -$68,900.00 $65,580.00 -$72,190.00 3 $46,640.00 -$24,380.00 $51,410.00 -$17,490.00 $64,520.00 -$7,670.00 4 $46,640.00 $22,260.00 $47,170.00 $29,680.00 $56,040.00 $48,370.00 5 $46,640.00 $68,900.00 $43,990.00 $73,670.00 $54,980.00 $103,350.00 Cash payback period of Project Kilo = 3 years + ($24380/$46640) = 3.52 years Cash payback period of Project Lima = 3 years + ($17490/$47170) = 3.37 years Cash payback period of Project Oskar = 3 years + ($7670/$56040) = 3.14 years Working Depreciation per year for Project Kilo = Cost / useful life = $164300 / 5 years = $32,860 Depreciation per year for Project Lima = Cost / useful life = $174900 / 5 years = $34,980 Depreciation per year for Project Oscar = Cost / useful life = $208650 / 5 years = $41,730 Answer b Computation of NPV of project Year Discount Factor @ 15% Project Kilo Project Lima Project Oscar Cash flow Present Values Cash flow Present Values Cash flow Present Values 0          1.00000 -$164,300.00 -$164,300.00 -$174,900.00 -$174,900.00 -$208,650.00 -$208,650.00 1          0.86957 $46,640.00 $40,556.52 $53,530.00 $46,547.83 $70,880.00 $61,634.78 2          0.75614 $46,640.00 $35,266.54 $52,470.00 $39,674.86 $65,580.00 $49,587.90 3          0.65752 $46,640.00 $30,666.56 $51,410.00 $33,802.91 $64,520.00 $42,422.95 4          0.57175 $46,640.00 $26,666.57 $47,170.00 $26,969.60 $56,040.00 $32,041.05 5          0.49718 $46,640.00 $23,188.32 $43,990.00 $21,870.80 $54,980.00 $27,334.78 NPV -$7,955.49 -$6,034.00 $4,371.46 NPV Project Kilo -$7,955.49 Project Lima -$6,034.00 Project Oscar $4,371.46 Answer c Calculation of annual rate of return Annual rate of return = Average annual net Income / Capital Investment   Average annual net income for Project Kilo = $68900/5 years = $13,780 Average annual net income for Project Lima = $73670/5 years = $14,734 Average annual net income for Project Oscar = $103350/5 years = $20670 Annual rate of return for Project Kilo = $13780/$164300 = 8.39% Annual rate of return for Project Lima = $14734/$174900 = 8.42% Annual rate of return for Project Oscar = $20670/$208650 = 9.91% Answer d Ranking of the project Project Cash payback Net Present Value Annual rate of return Kilo 3 3 3 Lima 2 2 2 Oscar 1 1 1 The best project is Oscar