Question - NPV with Unequal Cash Flows
Sanchez Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.
|
Project
|
|
Brown
|
Red
|
Yellow
|
|
Capital investment:
|
190,000
|
220,000
|
250,000
|
|
Annual net income:
|
|
|
|
|
Year 1
|
25,000
|
20,000
|
26,000
|
|
Year 2
|
16,000
|
20,000
|
24,000
|
|
Year 3
|
13,000
|
20,000
|
23,000
|
|
Year 4
|
10,000
|
20,000
|
17,000
|
|
Year 5
|
8,000
|
20,000
|
20,000
|
|
Total
|
72,000
|
100,000
|
110,000
|
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%.
Instructions: Compute the net present value for each project. (Round to the nearest dollar.)