Carr Company is considering two capital investment proposals. Estimates regardin
ID: 2474749 • 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 cash payback period for Project Soup is.
3.6 years.
6.7 years.
13.3 years.
5.0 years.
3.6 years.
Explanation / Answer
Cash payback period for Project Soup = Initial investment/Net annual cash inflow
Cash payback period for Project Soup = 400000/110000
Cash payback period for Project Soup = 3.6 Years
Answer
3.6 years
Project Soup Project Nuts Initial investment 400000 600000 Annual net income 30000 46000 Net annual cash inflow 110000 146000 Estimated useful life 5 Years 6 Years Salvage value 0 0 Required rate of Return 10% 10%