Problem - Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,000. Each project will last for 3 years and produce the following net annual cash flows.
YearAABBCC1$7,000 $10,000 $13,000 29,000 10,000 12,000 312,000 10,000 11,000 Total$28,000 $30,000 $36,000
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.
(b) Compute the net present value of each project.