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Accounting : Payback Period

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Carr Company is considering two capital investment proposals. Estimates regarding eac project are provide below:

Project Soup Project Nuts
Initial investment $400,000 $600,000
Annual Net Income 20,000 42,000
Net annual cash inflow 100,000 142,000
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 Soup is

1. 20 years
2. 10 years
3 5 years
4. 4 years

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Solution Summary

The expert examines a payback period accounting.

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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