Jackson Company is considering two capital investment proposals. Estimates regarding each project are given below:
Project Nuts Project Bolts
Initial Investment $175,000 $100,000
Annual Net Income $30,000 52,000
Annual Cash Inflow $70,000 $45,000
Salvage Value $0 $0
Estimated Useful Life 3 years 3 years
The company requires a 9% rate of return on all new investments.
Part (a) Evaluate the payback period for each project.
Part (b) Evaluate the net present value for each project.
Part (c) Which project should Jackson Company accept and why?