Carr Company is considering two capital investment proposals. Estimates regardin
ID: 2376062 • Letter: C
Question
Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below:
Project Soup Project Nuts
Initial investment $400,000 $600,000
Annual net income 30,000 46,000
Net annual cash inflow 110,000 146,000
Estimated useful life 5 years 6 years
Salvage value -0- -0-
The company requires a 10% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
5 3.890 3.791 3.696 3.605
6 4.486 4.355 4.231 4.111
The annual rate of return for Project Nuts is approximately
Explanation / Answer
the annual rate of return for project nuts=12.02%
the annual rate of return for project soup=11.65%
The NPV of project nuts at 10%=-600000+146000*4.355=35830
The NPV of project soup=-400000+110000*3.791=17010