Reference no: EM131822243
Dog River Company is considering two capital investment proposals. Relevant data on each project are as follows:
Project Red Project Blue
Capital investment $210,000 $980,000
Annual net income 15,000 90,000
Estimated useful life 7 years 7 years
Depreciation is calculated by the straight-line method with no salvage value. Dog River requires a10% rate of return on all new investments. The present value of 1 for 7 periods at 10% is .513 and the present value of an annuity of 1 for 7 periods is 4.868.
Instructions
(a) Calculate the cash payback period for each project.
(b) Calculate the net present value for each project.
(c) Calculate the annual rate of return for each project.
(d) Which project should Dog River select?
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