Question
David's Custom Manufacturing Company is considering three new projects. Each one requires an equipment investment of $25,600, will last for three years, and will produce
David's Custom Manufacturing Company is considering three new projects. Each one requires an equipment investment of $25,600, will last for three years, and will produce the following net annual cash flows:
YEAR | AA | BB | CC |
---|---|---|---|
1 | 7,460 | 10,176 | 13,780 |
2 | 9,540 | 10,176 | 9,540 |
3 | 12,720 | 10,176 | 11,660 |
total | $29,680 | $30,528 | $34,980 |
The equipment's salvage value is zero, and David uses straight-line depreciation. David will not accept any project with a payback period longer than two and a half years. David's required rate of return is 12%.
1.Calculate each project's payback period, using average annual cash flows. (Round answers to 2 decimal places, .g. 10.50 and use average annual cash flows in your calculations.)
2.Identify the most desirable project and the least desirable project using this method.
3.Calculate the net present value of each project. (If the answer is negative, use either a negative sign preceding the number e.g.-5,275 or parentheses e.g. (5,275). For calculation purposes, use 5 decimal places as displayed in the factor table provided, .g. 1.25124 and final answers to O decimal places, e.g. 5,275.)
4.Does your evaluation change?
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