Cepeda Manufacturing Company is considering three new projects, each requiring an equipment investment of $22,000. Each project will last for 3 years and produce the following cash inflows.

Year

AA

BB

CC

1

$7,000

$9,500

$11,000

2

9,000

9,500

10,000

3

15,000

9,500

9,000

Total

$31,000

$28,500

$30,000

The equipment's salvage value is zero. Cepeda uses straight-line depreciation. Cepeda will not accept any project with a payback period over 2.25 years. Cepeda's minimum required rate of return is 12%.

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(a)

Compute each project's payback period. (Round answers to 2 decimal places, e.g. 52.75.)

AA

BB

CCPayback period

years

years

years

Indicate the most desirable project and the least desirable project using this method.

Most desirable

Least desirable