Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,100. Each project will last for 3 years and produce the following net annual cash flows.
| Year |
AA |
BB |
CC |
| 1 |
$7,350 |
|
$10,500 |
|
$13,650 |
|
| 2 |
9,450 |
|
10,500 |
|
12,600 |
|
| 3 |
12,600 |
|
10,500 |
|
11,550 |
|
| Total |
$29,400 |
|
$31,500 |
|
$37,800 |
|
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.)
Which is the most desirable project?
Which is the least desirable 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.)