Question

Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below:Project Soup Project NutsInitial investment $400,000 $600,000 Annual net income 30,000 46,000 Net annual cash inflow 110,000 146,000 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 1Periods 9% 10% 11% 12% 5 3.890 3.791 3.696 3.6056 4.486 4.355 4.231 4.111The annual rate of return for Project Soup is

Answer 1

The annual rate of return for Project Soup is 7.5%, which is obtained by dividing the annual net income of $30,000 by the initial investment of $400,000 and then multiplying by 100.

Step-by-step explanation:

The student is asking about the calculation of the annual rate of return for Project Soup given by the Carr Company. To calculate this, we divide the annual net income by the initial investment and multiply by 100 to get a percentage. Therefore, the annual rate of return for Project Soup is calculated as follows: ($30,000 ÷ $400,000) × 100 = 7.5%. This means that Project Soup is expected to return 7.5% on the initial investment each year.