Question - Jack's Custom manufacturing Company is considering three new projects, each requiring an equipment investment of $21,000. Each project will last for 3 years and produce the following net annual cash flows
Year AA BB CC
1 $7,000 $9,500 $13,000
2 9,000 9,500 10,000
3 15,000 9,500 11,000
Total $31,000 $28,500 $34,000
The equipment's salvage value is zero, and jack uses straight-line depreciation. Jack will not accept any project with a cash payback period over 2 years. Jack's required rate of return is 12%.
Instructions - Compute each project's payback period, indicating the most desirable project and the lease desirable project using this method.