Skysong 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 $18,000 34,000
Net annual cash inflow $96,000 119,000
Estimated useful life 5 years 6 years
Salvage 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 annual rate of return for Project Soup is
Calculation of Rate of Return of Project Soup :-
= ((Current Value of Investment - Initial Investment for one year )/Initial Investment for one year )*100
= (($96000 - $80000) / $80000) * 100
= ($16000 / $80000) *100
= 20%
Current Value of Investment = $96000
Initial Investment for one year = $400000 / 5 year = $80000
Skysong Company is considering two capital investment proposals. Estimates regarding each project are provided below: &nbs
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