# Verdugo Corporation is considering three long-term capital investment - 10511

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## yousafbhutta

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• Posted on: Mon 28 May, 2012
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Verdugo Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.

 Project Brown Red Yellow Capital investment \$191,500 \$221,110 \$251,470 Annual net income: Year 1 25,125 20,129 26,480 2 16,204 20,129 24,208 3 13,327 20,129 23,409 4 10,262 20,129 17,211 5 8,105 20,129 20,125 Total \$73,023 \$100,645 \$111,433

Salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight-line method. The company's minimum rate of return is the company's cost of capital which is 12%. Compute the following and rank the projects for each category:

Instructions

Compute the average annual rate of return for each project. (Round answers to 1 decimal place, e.g. 10.5.)
Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.)
Compute the net present value for each project. (Round answers to 0 decimal places, e.g. 125.)
Which project do you recommend?

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