Question

Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $27,280. Each project will last for 3 years and produce the following net annual cash flows.

Year		AA		BB		CC
1		$8,680		$12,400		$16,120
2		11,160		12,400		14,880
3		14,880		12,400		13,640
Total		$34,720		$37,200		$44,640

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. (Round answers to 2 decimal places, e.g. 15.25.)

AA		Enter a number of years rounded to 2 decimal places	years
BB		Enter a number of years rounded to 2 decimal places	years
CC		Enter a number of years rounded to 2 decimal places	years

Which is the most desirable project?

The most desirable project based on payback period is

select a project Project AAProject BBProject CC

Which is the least desirable project?

The least desirable project based on payback period is

select a project Project BBProject AAProject CC

(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 final answers to the nearest whole dollar, e.g. 5,275. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

AA		enter a dollar amount rounded to 0 decimal places
BB		enter a dollar amount rounded to 0 decimal places
CC		enter a dollar amount rounded to 0 decimal places

Which is the most desirable project based on net present value?

The most desirable project based on net present value is select a project Project AAProject BBProject CC .

Which is the least desirable project based on net present value?

The least desirable project based on net present value is select a project Project CCProject AAProject BB .

Answer 1