Question

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

	Project Soup		Project Nuts
Initial investment	$335000		$648000
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

Answer 1

1) As the Usefull life of both the project is differenn hence for taking decision is which project is to invest will be taken on the basis of net present value of Project

NPV of Project = Initial Cash outflow - Present Value of Net Cash Inflow

Present Value = Net Cash flow * PVAF(r,y)

PVAF = Present Value annuity Factor

r = Rate of Discounting Factor= Desired Return from Investment

y = No of year

Particulars	Project Soup	Project Nuts
Inital Investment	-335000	-648000
PV of Net Cash Flow @ discounting Factor 10% Project Soup (110000)*3.791 Project Nuts (146000)*4.355	417010	635830
Salvage	0	0
Net Present Value of Investment	82010	(12170)

As Present Value is Positvie in cash of Project Soup $82010 and negative in case of Project Nuts $(12170), Project Soup with Positive NPV should be selected

Only Cashflows are consider while calculating Net present value and not the Net Income ie what we are getting in cash from such investment .

As the question doesnt specify the requirement of question , is anything missing or for any doubt  please specify in comment section . please upvote if it help .