Pina Colada Company is considering two capital investment proposals. Estimates regarding each project are provided below:
Project Soup Project Nuts
Initial investment $400000 $600000
Annual net income 38000 54000
Net annual cash inflow 114000 140000
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 annual rate of return for Project Soup is:
a. 9.5%.
b. 19.0%.
c. 57.0%.
d. 28.5%.
Answers: 1
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Pina Colada Company is considering two capital investment proposals. Estimates regarding each projec...
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