Doug\'s Custom Construction Company is considering three new projects, each requ
ID: 2479070 • Letter: D
Question
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. 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. Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.) AA years BB years CC yearsExplanation / Answer
AA
Year
Cash flow
Cum CashFlow
0
$ (25,080)
$ (25,080)
1
$ 7,980
$ (17,100)
2
$ 10,260
$ (6,840)
3
$ 13,680
$ 6,840
Payback Period= 2+6,840/13,680
=2+0.50 years
=2.5 years
BB
Year
Cash flow
Cum CashFlow
0
$ (25,080)
$ (25,080)
1
$ 11,400
$ (13,680)
2
$ 11,400
$ (2,280)
3
$ 11,400
$ 9,120
Payback Period= 2+2,280/11,400
=2+0.2
=2.2 years
CC
Year
Cash flow
Cum CashFlow
0
$ (25,080)
$ (25,080)
1
$ 14,820
$ (10,260)
2
$ 13,680
$ 3,420
3
$ 12,540
$ 15,960
Payback Period= 1+10,260/13,680
=1+0.75
=1.75 years
AA
Year
Cash flow
Cum CashFlow
0
$ (25,080)
$ (25,080)
1
$ 7,980
$ (17,100)
2
$ 10,260
$ (6,840)
3
$ 13,680
$ 6,840
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.