Depreciation is computed by the straight-line method

Question

Sanchez Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.

		Project
		Brown		Red		Yellow
Capital investment		$189,770		$219,020		$251,090
Annual net income:
Year 1		25,239		20,002		26,265
2		16,456		20,002		24,026
3		13,297		20,002		23,075
4		10,022		20,002		17,136
5		8,347		20,002		20,452
Total		$ 73,361		$100,010		$110,954

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 annual rate of return for each project. (Round answers to 1 decimal place, e.g. 10.5%.)

		Annual rate of return
Project Brown		15.5	%
Project Red		18.3	%
Project Yellow		17.7	%

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Compute the cash payback period for each project. 

		Cash Payback
Project Brown			3.44 years
Project Red			years
Project Yellow			years