Question 4

Bridgeport's Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,880. Each project will last for 3 years and produce the following net annual cash flows.

Year AA BB CC

1 7280 10400 13520

2 9360 10400 12480

3 12480 10400 11440

total 29120 31200 37440

The equipment's salvage value is zero, and Bridgeport uses straight-line depreciation. Bridgeport will not accept any project with a cash payback period over 2 years. Bridgeport'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

yearsBB

yearsCC

years

Which is the most desirable project?

The most desirable project based on payback period is

Project AA

Project BB

Project CC

Which is the least desirable project?

The least desirable project based on payback period is

Project BB

Project AA

Project CC