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1- Carr 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
|
30,000
|
46,000
|
|
Net annual cash inflow
|
110,000
|
146,000
|
|
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
|
SECOND QUESTION
| Present Value of an Annuity of 1 |
| Periods |
|
8% |
|
9% |
|
10% |
|
| 1 |
0.926 |
0.917 |
0.909 |
| 2 |
1.783 |
1.759 |
1.736 |
| 3 |
2.577 |
2.531 |
2.487 |
A company has a minimum required rate of return of 10%. It is considering investing in a project that costs $50,000 and is expected to generate cash inflows of $25,000 at the end of each year for three years. The profitability index for this project is?
Selma Inc. is comparing several alternative capital budgeting projects as shown below:
|
Projects |
|
A |
B |
C |
| Initial investment |
$80,000 |
$120,000 |
$160,000 |
| Present value of net cash flows |
90,000 |
110,000 |
200,000 |
Using the profitability index, the projects rank as