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

Project

Brown Red Yellow

Capital investment $196,000 $222,000 $249,000

Annual net income:

Year 1 25105 20246 26346

Year 2 16135 20246 24032

Year 3 13160 20246 23134

Year 4 10276 20246 17184

Year 5 8286 20246 20165

Total 72962 101230 110861

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:

1. Compute the average annual rate of return for each project.

Brown:

Red:

Yellow:

2. Compute the cash payback period for each project

Brown:

Red:

Yellow: