Danny Sutton Manufacturing Company is considering three new projects, each requiring an equipment investment of \($24,000\). Each project will last for 3 years and produce the Following " cash inflows

The equipment's salvage value is zero, and Sutton uses straight-line depreciation. Sutton will not accept any project u ith a payback period ovei 2 \ears. Sutton's minimum required rale of return is 15%.

Instructions

(a) Compute each project's payback period, indicating the most desirable project and the least desirable project using this method. (Round to two decimals and use average annual cash (lows in your computations, i

(b) Compute the net present value of each project. Does your evaluation change? (Round to nearest dollar.)

Transcribed Image Text:

Year AA BB 121 $15,000 $ 9,500 $13,000 9,000 9,500 11,000 3 7,500 9,500 9,000 Total $31,500 $28,500 $33,000