Task: Carr Company is considering two capital investment proposals. Estimates regarding eac project are provide below:
Project Soup Project Nuts
Initial investment $400,000 $600,000
Annual Net Income 20,000 42,000
Net annual cash inflow 100,000 142,000
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 Soup is
1. 20 years
2. 10 years
3 5 years
4. 4 years