Carr Company Is Considering Two Capital Investment Proposals The Company Requires a 10% Rate of Return on All

question 42

Multiple Choice

Carr Company is considering two capital investment proposals.Estimates regarding each project are provided below: $\begin{array}{lll}&\text { Project Soup }&\text { Project Nuts }\\\text { Initial investment } & \$ 270,000 & \$ 600,000 \\\text { Annual net income } & 27,000 & 45,000 \\\text { Net annual cash inflow } &90,000 & 142,000 \\\text { Estimated useful life } & 5 \text { years } & 6 \text { years } \\\text { Salvage value } & -0 \text { - } & -0 \text { - }\end{array}$ The company requires a 10% rate of return on all new investments.
$\text { Present Value of an Annuity of } 1$
$\begin{array}{lllll}\text { Periods }&9\%&10\%&11\%&12\%\\5 & 3.890 & 3.791 & 3.696 & 3.605 \\6 & 4.486 & 4.355 & 4.231 & 4111\end{array}$ The net present value for Project Nuts is

• A)$618,410.
• B)$182,912.
• C)$100,000.
• D)$18,410.

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Definitions:

Debt/Equity Ratio

A financial metric showing the balance between the amount of equity provided by shareholders and the debt incurred to support a company's assets.

Cost of Borrowing

The total expense incurred by an entity for borrowing funds, including interest payments, fees, and other charges.

Book Value Per Share

A financial measure that represents a per share assessment of the minimum value of a company's equity.

Equipment On Credit

The acquisition of machinery or equipment for business operations where payment is made through financing or on a deferred payment plan instead of upfront cash.