Roger Industries is considering two capital investment proposals. Estimates regarding each project are provided below:
|
Project XR8 |
|
Project AAA |
| Initial investment |
$800,000 |
|
$1,200,000 |
| Annual net income |
40,000 |
|
84,000 |
| Net annual cash inflow |
200,000 |
|
284,000 |
| 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 XR8 is