oger Industries is considering two capital investment proposals. Estimates regar

Question

oger 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

20 years.

4 years.

10 years.

5 years.

The annual rate of return for Project XR8 is

25%.

50%.

5%.

10%.

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

Hi,

Please find the answers as follows:

The cash payback period for Project XR8 is = 800000/200000 = 4 years.

The annual rate of return for Project XR8 = 40000/(800000/2)*100 = 10%

Thanks.

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