Why the doug uses straight-line depreciation

Question

Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $29,260. Each project will last for 3 years and produce the following net annual cash flows.

Year

AA

BB

CC

1

$9,310

$13,300

$17,290

2

11,970

13,300

15,960

3

15,960

13,300

14,630

Total

$37,240

$39,900

$47,880

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%. (Refer the below table)

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

AA			years
BB			years
CC			years

Which is the most desirable project?

The most desirable project based on payback period is

Project AAProject BBProject CC

 

Which is the least desirable project?

The least desirable project based on payback period is

Project BBProject AAProject CC