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(TCO 6) Savanna Company is considering two capital investment proposals. Relevant data on each project are as follows. Project Red Project Blue Capital investment $400,000

(TCO 6) Savanna Company is considering two capital investment proposals. Relevant data on each project are as follows.

Project Red

Project Blue

Capital investment

$400,000

$560,000

Annual net income

$50,000

$80,000

Annual cash flows

$100,000

$150,000

Estimated useful life

8 years

8 years

Savanna requires an 8% rate of return on all new investments.

Part (a): Compute the payback period for each project. Part (b): Compute the net present value for each project. Part (c): Compute the accounting rate of return for each project. Part (d): Which project should Savanna select?

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