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Evaluating the two projects on the payback method

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Reference no: EM132556447

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: EM132556447

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