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Compute the cash payback period for each project

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Reference no: EM132785235

Savanna Company is considering two capital investment proposals.

Relevant data on each project are as follows:

                                         Project Red                  Project Blue

Capital investment          $440,000                    640,000

Annual net income             25,000                     60,000

Estimated useful life           8 years                      8 years

Depreciation is computed by the straight-line method with no salvage value. Savanna requires an 8% rate of return on all new investments. The present value of 1 for 8 periods at 8% is .540 and the present value of an annuity of 1 for 8 periods is 5.747.

Problem 1: Compute the cash payback period for each project.

Problem 2: Compute the net present value for each project.

 

Reference no: EM132785235

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