Jackson Company is considering two capital investment proposals. Estimates regarding each project are provided 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): Calculate the payback period for each project.
Part (b): Calculate the net present value for each project.
Part (c): Which project should Jackson Company accept and why?