Newman Automobiles Manufacturing is considering two alternative investment proposals with the following data:     Proposal X Proposal Y Investment $12,000,000 $600,000 Useful life 8 years 8 years Estimated annual net cash inflows for 8 years $2,000,000 $95,000 Residual value $60,000 $30,000 Depreciation method Straight-line Straight-line Required rate of return 12% 10%   Calculate Pay back period  for Proposal X and Proposal Y.

Question

1) Newman Automobiles Manufacturing is considering two alternative investment proposals with the following data:

 

 

Proposal X

Proposal Y

Investment

$12,000,000

$600,000

Useful life

8 years

8 years

Estimated annual net cash inflows for 8 years

$2,000,000

$95,000

Residual value

$60,000

$30,000

Depreciation method

Straight-line

Straight-line

Required rate of return

12%

10%

 

Calculate Pay back period  for Proposal X and Proposal Y.

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