Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,320. Each project will last for 3 years and produce the following net annual cash flows.
| Year |
|
AA |
|
BB |
|
CC |
|
| 1 |
|
$7,420 |
|
$10,600 |
|
$13,780 |
|
| 2 |
|
9,540 |
|
10,600 |
|
12,720 |
|
| 3 |
|
12,720 |
|
10,600 |
|
11,660 |
|
| Total |
|
$29,680 |
|
$31,800 |
|
$38,160 |
|
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%.
Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.)
Which is the most desirable project?
| The most desirable project based on payback period is |
|
 |
|
Which is the least desirable project?
| The least desirable project based on payback period is |
|
|
|
|
|
|
|
|
| (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 answers to the nearest whole dollar, e.g. 5,275.)
Which is the most desirable project based on net present value?
| The most desirable project based on net present value is . |
|
Which is the least desirable project based on net present value?
| The least desirable project based on net present value |
|
|
|