Multiple Choice Question 129 Multiple Choice Question 129 Swifty Company is cons

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Multiple Choice Question 129

Multiple Choice Question 129

Swifty Company is considering two capital investment proposals. Estimates regarding each project are provided below:
Project Echo Project Charlie Initial investment $392000 $599000 Annual net income 15680 38000 Net annual cash inflow 101000 147000 Estimated useful life 5 years 6 years Salvage value 0 0

The company requires an 11% 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 annual rate of return for Project Echo is

26%. 8%. 4%. 52%.

Explanation / Answer

Annual rate of return for Project Echo = 15680/(392000/2)= 8% Option 2 is correct

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