Question
In: Accounting
Coronado’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,540....
Coronado’s Custom Construction Company is considering three new
projects, each requiring an equipment investment of $23,540. Each
project will last for 3 years and produce the following net annual
cash flows.
| Year | AA | BB | CC | ||||
| 1 | $7,490 | $10,700 | $13,910 | ||||
| 2 | 9,630 | 10,700 | 12,840 | ||||
| 3 | 12,840 | 10,700 | 11,770 | ||||
| Total | $29,960 | $32,100 | $38,520 |
The equipment’s salvage value is zero, and Coronado uses
straight-line depreciation. Coronado will not accept any project
with a cash payback period over 2 years. Coronado’s required rate
of return is 12%. Click here to view PV table.
(a)
Compute each project’s payback period. (Round answers
to 2 decimal places, e.g. 15.25.)
| AA | years | ||
| BB | years | ||
| CC | years |
Which is the most desirable project?
| The most desirable project based on payback period is |
a. Project AA b. Project BB c. Project CC |
Which is the least desirable project?
| The least desirable project based on payback period is |
a.) Project BB b. Project AA c. Project CC |
(b)
Compute the net present value of each project. (Enter
negative amounts using either a negative sign preceding the number
e.g. -45 or parentheses e.g. (45). Round final answers to the
nearest whole dollar, e.g. 5,275. For
calculation purposes, use 5 decimal places as displayed in the
factor table provided.)
| AA | |||
| BB | |||
| CC |
Which is the most desirable project based on net present
value?
| The most desirable project based on net present value is
a. Project BB b. Project AA c. Project CC . |
Which is the least desirable project based on net present
value?
| The least desirable project based on net present value is
a. Project BB b. Project CC c. Project AA . |
Solutions
Expert Solution
a. Payback period of project AA=2.5 years
Payback period of project BB=2.2 years
Payback period of project CC= 1.75 years
The most desirable project is project CC
The least desirable project is project AA.
b. Net present value of Project AA=$-38
Net present value of Project BB=$2156
Net present value of project CC=$7489
The most desirable project is project CC.
The least desirable project is project AA.
ekkarill92 answered 1 year agoRelated Solutions
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Doug’s Custom Construction Company is considering three new
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11,200 13,440 3 13,440 11,200 12,320 Total $ 31,360 $ 33,600 $
40,320 The equipment’s salvage value is zero, and Doug uses
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Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,320....
Doug’s Custom Construction Company is considering three new
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Year
AA
BB
CC
1
$7,420
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2
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10,600
12,720
3
12,720
10,600
11,660
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The equipment’s salvage value is zero, and Doug uses straight-line
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Crane’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $25,080....
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Year AA BB CC
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The equipment’s salvage value is zero, and Crane uses
straight-line depreciation. Crane will not accept any project with
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Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,760....
Doug’s Custom Construction Company is considering three new
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project will last for 3 years and produce the following net annual
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Year
AA
BB
CC
1
$7,560
$10,800
$14,040
2
9,720
10,800
12,960
3
12,960
10,800
11,880
Total
$30,240
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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...
Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $27,500....
Doug’s Custom Construction Company is considering three new
projects, each requiring an equipment investment of $27,500. Each
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Year
AA
BB
CC
1
$8,750
$12,500
$16,250
2
11,250
12,500
15,000
3
15,000
12,500
13,750
Total
$35,000
$37,500
$45,000
The equipment’s salvage value is zero, and Doug uses straight-line
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Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $27,280....
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Year
AA
BB
CC
1
$8,680
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2
11,160
12,400
14,880
3
14,880
12,400
13,640
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Exercise 24-2
Doug’s Custom Construction Company is considering three new
projects, each requiring an equipment investment of $25,080. Each
project will last for 3 years and produce the following net annual
cash flows.
Year AA BB CC
1 $7,980 $11,400 $14,820
2 10,260 11,400 13,680
3 13,680 11,400 12,540
Total $31,920 $34,200 $41,040
The equipment’s salvage value is zero, and Doug uses straight-line
depreciation. Doug will not accept any project with a cash payback
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Exercise 25-02 Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment...
Exercise 25-02
Doug’s Custom Construction Company is considering three new
projects, each requiring an equipment investment of $24,200. Each
project will last for 3 years and produce the following net annual
cash flows.
Year
AA
BB
CC
1
$7,700
$11,000
$14,300
2
9,900
11,000
13,200
3
13,200
11,000
12,100
Total
$30,800
$33,000
$39,600
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...
Exercise 25-02 Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment...
Exercise 25-02
Doug’s Custom Construction Company is considering three new
projects, each requiring an equipment investment of $24,420. Each
project will last for 3 years and produce the following net annual
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Year
AA
BB
CC
1
$7,770
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$14,430
2
9,990
11,100
13,320
3
13,320
11,100
12,210
Total
$31,080
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The equipment’s salvage value is zero, and Doug uses straight-line
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period over 2 years. Doug’s required...
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Year
AA
BB
CC
1
$8,190
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with a cash payback period over 2 years. Sheffield’s required rate
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