Doug’s Custom Construction Company is considering three new projects, each requi
ID: 2450199 • Letter: D
Question
Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $26,620. Each project will last for 3 years and produce the following net annual cash flows. Year AA BB CC 1 $8,470 $12,100 $15,730 2 10,890 12,100 14,520 3 14,520 12,100 13,310 Total $33,880 $36,300 $43,560 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%. (Refer the below table)
Compute each project’s payback period. (Round answers to 2 decimal places, e.g. 15.25.)AA years BB years CC years
Which is the most desirable project?
The most desirable project based on payback period is Project AAProject BBProject CC
Which is the least desirable project?
The least desirable project based on payback period is Project BBProject AAProject CC
Explanation / Answer
Doug’s Custom Construction Company is considering three new projects, each requi
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