A company has a minimum required rate of return of 10 it is

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1- Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below:


Project Soup

Project Nuts

Initial investment

$400,000


$600,000


Annual net income

30,000

46,000

Net annual cash inflow

110,000

146,000

Estimated useful life

5 years

6 years

Salvage value

-0-

-0-

The company requires a 10% 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

SECOND QUESTION

Present Value of an Annuity of 1
Periods
8%
9%
10%
1 0.926 0.917 0.909
2 1.783 1.759 1.736
3 2.577 2.531 2.487

A company has a minimum required rate of return of 10%. It is considering investing in a project that costs $50,000 and is expected to generate cash inflows of $25,000 at the end of each year for three years. The profitability index for this project is?

Selma Inc. is comparing several alternative capital budgeting projects as shown below:


Projects

A B C
Initial investment $80,000 $120,000 $160,000
Present value of net cash flows   90,000 110,000 200,000

Using the profitability index, the projects rank as

Reference no: EM13569493

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