Question

KingbirdCompany is considering two capital investment proposals. Estimates regarding each project are provided below:

	Project Soup	Project Nuts
Initial investment	$470000	$456000
Annual net income	30000	46000
Net annual cash inflow	110000	146000
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	3.89	3.791	3.696	3.605
6	4.486	4.355	4.231	4.111

The cash payback period for Project Nuts is

5.88 years.

3.12 years.

5.36 years.

15.67 years.

Answer 1

Year	Cash Flow	Accumulated cash flow
0	$ -456,000.00	$                     -456,000.00
1	146000	$                     -310,000.00
2	146000	$                     -164,000.00
3	146000	$                        -18,000.00
4	146000	$                       128,000.00
5	146000	$                       274,000.00
6	146000	$                       274,000.00
Payback period for project Nuts= 3years + 18000/146000
=3.12 years