Jackson Company is considering two capital investment proposals. Estimates regar
ID: 2629013 • Letter: J
Question
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?
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
Explanation / Answer
Particulars
Project Nuts
Project Bolts
a)Payback period = (Initial Investment/Annual Cash Inflow)
= 175000/70000
= 2.5 years
= 100000/45000
= 2.22 years
b)Net Present Value = P.V. of Cash Inflows
Particulars
Project Nuts
Project Bolts
a)Payback period = (Initial Investment/Annual Cash Inflow)
= 175000/70000
= 2.5 years
= 100000/45000
= 2.22 years
b)Net Present Value = P.V. of Cash Inflows
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