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Demonstrate the two projects on the payback method

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Reference no: EM132556778

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

                                                              Project Candy           Project Cracker

Initial investment                                  $400,000                    $600,000

Annual net income                                  30,000                         46,000

Net annual cash inflow                            110,000                      143,000

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

Question 1: What is the Net Present Value of each of the two projects?

Question 2: Evaluating the two projects on the Payback method, which project would you select as the more attractive. Please state your reasons why.

Reference no: EM132556778

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