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  • Project Red: Problem 9-3: Daisy Company

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    Daisy Company is evaluating two projects, Project Red and Project Blue. Project Red has a capital investment of $400,000, annual net income of $30,000 plus depreciation of $50,000 for total annual cash flows of $80,000. It has a cash payback period of 5 years and a net present value of $59,760. Project Blue has a capital investment of $560,000 and annual cash flows of $120,000 with a cash payback period of 4.67 years and a net present value of $129,640. It is also determined that Project Red has an annual rate of return of 15% while Project Blue has an annual rate of return of 18%.

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    Daisy Company is evaluating two projects, Project Red and Project Blue. Project Red has a capital investment of $400,000, annual net income of $30,000 plus depreciation of $50,000 for total annual cash flows of $80,000. It has a cash payback period of 5 years and a net present value of $59,760. Project Blue has a capital investment of $560,000 and annual cash flows of $120,000 with a cash payback period of 4.67 years and a net present value of $129,640. It is also determined that Project Red has an annual rate of return of 15% while Project Blue has an annual rate of return of 18%.

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    © All Rights Reserved
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    30 views2 pages

    Project Red: Problem 9-3: Daisy Company

    Uploaded by

    JP
    Daisy Company is evaluating two projects, Project Red and Project Blue. Project Red has a capital investment of $400,000, annual net income of $30,000 plus depreciation of $50,000 for total annual cash flows of $80,000. It has a cash payback period of 5 years and a net present value of $59,760. Project Blue has a capital investment of $560,000 and annual cash flows of $120,000 with a cash payback period of 4.67 years and a net present value of $129,640. It is also determined that Project Red has an annual rate of return of 15% while Project Blue has an annual rate of return of 18%.

    Copyright:

    © All Rights Reserved
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    of 2

    Problem 9-3: Daisy Company

    Project Red    
    (a ₱
    ) Capital Investment 400,000
    Divide by:Annual Cash Flows
    ₱
    Annual Net Income 30,000

    Add: Depreciation (400,000 / 8 years) 50,000 80,000


    Cash Payback 5
    Cash Payback Period 5 years

    (b ₱
    ) PV of Annual Cash Flows (80,000 x 5.747) 459,760
    -
    Less: Total Investment Costs 400,000
    ₱
    Net Present Value 59,760

    (c ₱
    ) Net Income 30,000
    Divide by: Average Investment Cost
    ₱
    Total Investment Cost 400,000

    Divide by: 2 2 200,000


    Annual rate of return 15%

    Project Blue    
    ₱
    Capital Investment 560,000
    Divide by: Annual Cash Flows
    ₱
    Annual Net Income 50,000

    Add: Depreciation (560,000 / 8 years) 70,000 120,000

    Cash Payback 4.67


    Cash Payback Period 4.67 years

    ₱
    PV of Annual Cash Flows (120,000 x 5.747) 689,640
    -
    Less: Total Investment Costs 560,000
    ₱
    Net Present Value 129,640

    ₱
    Net Income 50,000
    Divide by: Average Investment Cost
    ₱
    Total Investment Cost 560,000

    Divide by: 2 2 280,000


    Annual rate of return 18%

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