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Doug\'s Custom Construction Company is considering three new projects, each requ

ID: 2487439 • Letter: D

Question

Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $19,380. 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 percentage. Compute each project's payback period. AA years BB years CC years Which is the most desirable project? The most desirable project based on payback period is Which is the least desirable project? The least desirable project based on payback period is Compute the net present value or each project. (Enter negative amounts using either a negative a negative sign preceding the number e.g. -45 or parentheses e.g.(45). Round answers to the nearest whole dollar, e.g. 5,275 AA BB CC

Explanation / Answer

AA

BB

CC

CASH INFLOW

34272

32283

34986

CASH OUTFLOW

19380

19380

19380

PAYBACK PEROID

1.76

1.66

1.81

PROJECT AA

1

2

3

CASH INFLOW

8262

10608

15402

PESENT VALUE FACTOR 12%

0.89286

0.797194

0.71178

PRESENT VALUE OF CASH INFLOW OF PROJECT AA

7376.81

8456.63

10962.84

26796.28

PRESENT VALUE OF CASH OUTLOW OF PROJECT AA

19380

NET PRESENT VALUE

7416.28

PROJECT BB

1

2

3

CASH INFLOW

10761

10761

10761

PESENT VALUE FACTOR 12%

0.89286

0.797194

0.71178

PRESENT VALUE OF CASH INFLOW OF PROJECT BB

9608.07

8578.60

7659.46

25846.14

PRESENT VALUE OF CASH OUTLOW OF PROJECT BB

19380

NET PRESENT VALUE

6466.14

PROJECT CC

1

2

3

CASH INFLOW

13362

10302

11322

PESENT VALUE FACTOR 12%

0.89286

0.797194

0.71178

PRESENT VALUE OF CASH INFLOW OF PROJECT CC

11930.39

8212.69

8058.77

28201.86

PRESENT VALUE OF CASH OUTLOW OF PROJECT CC

19380

NET PRESENT VALUE

8821.86

AA

BB

CC

CASH INFLOW

34272

32283

34986

CASH OUTFLOW

19380

19380

19380

PAYBACK PEROID

1.76

1.66

1.81

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