Carr Company is considering two capital investment proposals. Estimates regardin
ID: 2483011 • 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 net present value for Project Nuts is
a. $35,830.
b. $635,830.
c. $100,000.
d. $200,330.
Explanation / Answer
PV = cashflow / (1+i)^n
where i = 10% and n is he number of period or year
Year Project Soup PV@10% Project nuts PV@10% 0 (400,000) (400,000) (600,000) (600,000) 1 110,000 100,000 146,000 132,727 2 110,000 90,909 146,000 120,661 3 110,000 82,645 146,000 109,692 4 110,000 75,131 146,000 99,720 5 110,000 68,301 146,000 90,655 6 - 146,000 82,413 NPV 16,987 35,830