Roger Industries is considering two capital investment proposals. Estimates regarding each project are provided below:
| Project XR8 | Project AAA | ||
| Initial investment | $800,000 | $1,200,000 | |
| Annual net income | 40,000 | 84,000 | |
| Net annual cash inflow | 200,000 | 284,000 | |
| 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 |
The cash payback period for Project XR8 is
|
10 years. |
|
4 years. |
|
5 years. |
|
20 years. |