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

Question

Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $21,850. 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 the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Your answer Is partially correct. Try again. Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.) AA years.

Explanation / Answer

Year Project AA Project BB Project CC Cash Flows Cumulative Cash Flows Cash Flows Cumulative Cash Flows Cash Flows Cumulative Cash Flows 0 -21850 -21850 -21850 -21850 -21850 -21850 1 9315 -12535 12133 -9717 15065 -6785 2 11960 -575 12133 2416 11615 4830 3 17365 16790 12133 14549 12765 17595 PAYBACK PERIOD Project AA: 2+(575/17365) 2.033 years Project BB: 1+(9717/12133) 1.801 years Project CC: 1+(6785/11615) 1.584 years

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