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Compute the cash payback period for each project

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Question - 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

3 years

Depreciation is computed by the straight-line method with no salvage value. Savanna requires an 3% rate of return on all new investments. The present value of 1 for 8 periods at 3% is .540 and the present value of an annuity of 1 for 8 periods is 5.747.

Required - Compute the cash payback period for each project.

Reference no: EM133183131

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