Roger Industries is considering two capital investment proposals. Estimates rega

Question

Roger Industries is considering two capital investment proposals. Estimates regarding each project are provided below:

The company requires a 10% rate of return on all new investments.

                    Present Value of an Annuity of 1

The cash payback period for Project XR8 is

10 years.

4 years.

5 years.

20 years.

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

Explanation / Answer

80000 = 200000 / 0.1 *(1-1/1.1^t) implies t = approximately 4 years

net annual income is not taken into account

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