E24-2 Doug\'s Custom Construction Company is considering three new projects, eac

Question

E24-2 Doug's Custom Construction Company is considering three new projects, each c requiring an equipment investment of $22,000. Each project will last for 3 years and a produce the following net annual cash flows Year 7,000 9,000 12,000 $28,000 $10,000 10,000 10,000 $30,000 $13,000 12,000 11,000 $36,000 Total 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%. Instructions (a) Compute each project's payback period, indicating the most desirable project and the least desirable project using this method. (Round to two decimals and assume in your computations that cash flows occur evenly throughout the year:) (b) Compute the net present value of each project. Does your evaluation change? (Round to nearest dollar.)

Explanation / Answer

Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organization or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Gross working capital equals to current assets.

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