Exercise 25-02

Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $27,060. Each project will last for 3 years and produce the following net annual cash flows.

Year

AA BB CC

1 $8,610 $12,300 $15,990

2 $11,070 $12,300 $14,760

3 $ 14,760 $12,300 $ 13,530

Total $34,440 $36,900 $44,280

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 the factor table. Too large to attach.

(a)

Compute each project's payback period.(Round answers to 2 decimal places, e.g. 15.25.)

AA ____ YEARS Enter a number of years rounded to 2 decimal places

BB ______ YEARS

CC _______YEARS

Which is the most desirable project?

The most desirable project based on payback period is select a project

Project AA

Project BB

Project CC

Which is the least desirable project?

The least desirable project based on payback period is select a project

Project BB

Project AA

Project 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 enter a dollar amount rounded to 0 decimal places

BB enter a dollar amount rounded to 0 decimal places

CC enter a dollar amount rounded to 0 decimal places

Which is the most desirable project based on net present value?

The most desirable project based on net present value isselect a project

Project AA

Project CC

Project BB

.

Which is the least desirable project based on net present value?

The least desirable project based on net present value isselect a project

Project AA

Project BB

Project CC

.