Refer to the information in Exercise 26-1. Project 1 has a seven-year useful life, and Project 2 has a fiveyear useful life. Assume the company requires a 10% rate of return on its investments. Compute the net present value of each potential investment.

Data From Exercise 26-1

Information for two alternative projects involving machinery investments follows. 

Project 1 requires an initial investment of $135,000. 

Project 2 requires an initial investment of $98,000. Compute 

(a) Annual net cash flow and 

(b) Payback period for each investment.

Transcribed Image Text:

Annual Amounts Project 1 Project 2 Sales of new product $100,000 $80,000 Expenses.... Materials, labor, and overhead (except depreciation).. 65,000 32,000 Depreciation-Machinery .... 20,000 18,000 Selling, general, and administrative expenses.. 8,000 20,000 Income.... $ 7,000 $10,000