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 Nuts is:

Group of answer choices

4.1 years.

6.7 years.

13.3 years.

5.0 years.

The net present value for Project Nuts is:

Group of answer choices

$200,330.

$635,830.

$100,000.

$35,830.

The annual rate of return for Project Soup is:

Group of answer choices

55%.

27.5%.

15.0%.

7.5%.

Answer 1

Question 1

Correct answer------------4.1 years

Working

Payback Period
	Choose Numerator	/	Choose Denominator	=	Payback Period
	Initial Investment	/	Net annual cash inflow	=	Payback Period
	$ 600,000	/	$ 146,000	=	4.1

.

Question 2

Correct answer------------$35,830

Working

Year	Cash flows (A)	PV factor (B)	Present value of cash flow (a x B)
1-6	$              146,000	4.355	$              635,830
Present value of cash flows			$              635,830
Less; Initial investment required			$              600,000
Net Present value			$                 35,830

.

Question 3

Correct answer------------27.5%

Working

Annual Rate of Rerurn
Net Return	$ 110,000.00
Investment	$ 400,000.00
%of return (110000/400000)	27.5%