A company has a decision to make between two investment alternatives. The company requires a 10% return on investment. Predicted data is provided below:
|
Investment Y
|
Investment Z
|
|
Projected after-tax net income
|
$ 40,000
|
$ 43,000
|
|
Investment costs
|
$600,000
|
$672,000
|
|
Estimated life
|
6 years
|
6 years
|
The present value of an annuity for six years at 10% is 4.3553. This company uses straight-line depreciation.
Required:
a. Calculate the net present value for each investment.
b. Calculate the Annual Accounting Return.
c. Calculate the payback period.
d. Estimate the Internal Rate of Return.
e. Which investment should this company select? Explain.