Suzaki Manufacturing Company is considering three new projects, each requiring a
ID: 2428510 • Letter: S
Question
Suzaki Manufacturing Company is considering three new projects, each requiring an equipment investment of $22,400. Each project will last for 3 years and produce the following cash inflows.Year AA BB CC
1 $6,996 $9,450 $13,088
2 8,983 9,450 10,025
3 14,914 9,450 9,081
Total $30,893 $28,350 $32,194
The equipment's salvage value is zero. Suzaki uses straight-line depreciation. Suzaki will not accept any project with a payback period over 2 years. Suzaki's minimum required rate of return is 12%.
Instructions Compute each project's payback period, indicating the most desirable project and the least desirable project using this method. (Round answers to 2 decimal places, e.g. 10.50.)
AA________ YEARS _____
BB________ YEARS ______
CC ________ YEARS ______
Compute the net present value of each project, indicating the most desirable project and the least desirable project using this method. (Round computations and final answers to 0 decimal places, e.g. 125.)
AA $ AND ______
BB $ AND _____
CC $ AND _____
Explanation / Answer
Years
AA
BB
CC
1
6996
9450
13088
2
8983
9450
10025
3
14914
9450
9081
Investment
22400
22400
22400
In First two year
15979
18900
13088
Required amount
6421
3500
9312
0.43 Years
0.37 Years
0.93 Years
Payback periode:
= 2.43 Years
= 2.37 Years
= 1.93 Years
Years
AA
Required rate 12%
Present value
1
6996
+1/(1+12%)^1
0.892857143
6246.428571
2
8983
+1/(1+12%)^2
0.797193878
7161.192602
3
14914
+1/(1+12%)^3
0.711780248
10615.49062
Present value of Cash In Flows
24023.11179
Less: Investment
22400
Net Present Value
$1,623
BB
Required rate 12%
Present value
9450
+1/(1+12%)^1
0.892857143
8437.5
2
9450
+1/(1+12%)^2
0.797193878
7533.482143
3
9450
+1/(1+12%)^3
0.711780248
6726.323342
Present value of Cash In Flows
22697.30548
Less: Investment
22400
Net Present Value
$297
Years
CC
Required rate 12%
Present value
1
13088
+1/(1+12%)^1
0.892857143
11685.71429
2
10025
+1/(1+12%)^2
0.797193878
7991.868622
3
9081
+1/(1+12%)^3
0.711780248
6463.67643
Present value of Cash In Flows
26141.25934
Less: Investment
22400
Net Present Value
$3,741
AA 2.43 Years BB 2.37 Years CC 1.93 YearsRelated Questions
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