Exercise 26-2 Doug\'s Custom Construction Company is considering three new proje

Question

Exercise 26-2 Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,880. Each project will last for 3 years and produce the following net annual cash flows $7,280 $10,400 $13,520 9,360 10,40012,480 12,480 10,400 11,440 Total $29,120 $31,200 $37,440 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.) years years 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

Explanation / Answer

year AA BB CC 1 7,280 10,400 13,520 2 9,360 10,400 9,360 3 6,240 2,080 22,880 22,880 22,880 6240/12480 0.5 2080/10400 0.2 9360/12,480 0.75 a) AA 2.5 BB 2.2 CC 1.75 most desirable project CC least desirable project AA

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