Question

Skysong 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 18000 34000 Net annual cash inflow 96000 119000 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 3.89 3.791 3.696 3.605 6 4.486 4.355 4.231 4.111 The annual rate of return for Project Soup is

Answer 1

20%

Step-by-step explanation:

Calculation to determine The annual rate of return for Project Soup is

Annual rate of return = [(Current Value of Investment - Initial Investment for one year )/Initial Investment for one year )]*100

Let plug in the formula

Annual rate of return= (($96000 - $80000) / $80000) * 100

Annual rate of return= ($16000 / $80000) *100

Annual rate of return= 20%

Workings:

Calculation to determine the Initial Investment for one year

Initial Investment for one year = $400000 / 5 year

Initial Investment for one year = $80000

Therefore The annual rate of return for Project Soup is 20%