Question

Crane’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 Crane uses straight-line depreciation. Crane will not accept any project with a cash payback period over 2 years. Crane’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 your answer rounded to 2 decimal places years

BB

enter your answer rounded to 2 decimal places years

CC

enter your answer rounded to 2 decimal places years

Which is the most desirable project?

The most desirable project based on payback period is select a project

Which is the least desirable project?

The least desirable project based on payback period is select a project

(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 the net present value in dollars rounded to the nearest whole

BB

enter the net present value in dollars rounded to the nearest whole

CC

enter the net present value in dollars rounded to the nearest whole

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

The most desirable project based on net present value is select a project

.

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

The least desirable project based on net present value is select a project

.

Answer 1