Budgeting and Forecasting Problem
Jackson Company is considering two capital investment proposals. Estimates regarding each project are provided below:
;
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Project Bolts |
|
|
Initial Investment |
$175,000 |
$100,000 |
|
Annual Net Income |
$30,000 |
52,000 |
|
Annual Cash Inflow |
$70,000 |
$45,000 |
|
Salvage Value |
$0 |
$0 |
|
Estimated Useful Life |
3 years |
3 years |
;
The company requires a 9% rate of return on all new investments.
;
Part (a) Calculate the payback period for each project.
Part (b) Calculate the net present value for each project.
Part (c) Which project should Jackson Company accept and why?
(Please show work and make sure the answer is 100% correct. Thanks!)
