1.CAPITAL BUDGETING
The partnership of Lee and Bing is considering three long-term capital investment proposals. Relevant data on each project are as follows.
Brown
Red
Yellow
capital investment
200,000
225,000
250,000
annual net income
Year 1
25,000
20,000
26,000
2
16,000
24,000
3
13,000
23,000
4
10,000
22,000
5
8,000
total
72,000
100,000
115,000
The salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight line method. The company’s required rate of return is the company’s cost of capital which is 12%.
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