Question
Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,100. Each project will last for 3 years and produce
Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,100. Each project will last for 3 years and produce the following net annual cash flows.
Year | AA | BB | CC | |||
1 | $7,350 | $10,500 | $13,650 | |||
2 | 9,450 | 10,500 | 12,600 | |||
3 | 12,600 | 10,500 | 11,550 | |||
Total | $29,400 | $31,500 | $37,800 |
The equipment's salvage value is zero, and Doug uses straight-line depreciation. Doug will not accept any project with a cash payback period over 2 years. Doug's required rate of return is 12%.Click here to view PV table.
(a)
Compute each project's payback period.(Round answers to 2 decimal places, e.g. 15.25.)
AA | years | |
BB | years | |
CC | years |
Which is the most desirable project?
The most desirable project based on payback period is | Project AAProject BBProject CC |
Which is the least desirable project?
The least desirable project based on payback period is | Project BBProject AAProject CC |
(b)
Compute the net present value of each project.(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round final answers to the nearest whole dollar, e.g. 5,275.For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
AA | |
BB | |
CC |
Which is the most desirable project based on net present value?
The most desirable project based on net present value is Project BBProject AAProject CC. |
Which is the least desirable project based on net present value?
The least desirable project based on net present value is Project CCProject AAProject BB. |
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