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20 June, 06:01

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

The annual rate of return for Project Soup is

7.5%.

27.5%.

55%.

15.0%.

+2
Answers (1)
  1. 20 June, 09:31
    0
    15.0%.

    Explanation:

    The formula to compute the annual rate of return is shown below:

    = Annual net income : average investment

    where,

    Annual net income is $30,000

    And, the average investment would be

    = (Initial investment + salvage value) : 2

    = ($400,000 + $0) : 2

    = $400,000 : 2

    = $200,000

    Now put these values to the above formula

    So, the rate would equal to

    = $30,000 : $200,000

    = 15%
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Home » Business » 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
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