Question
(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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