Exercise 24-2 Open Show Work Exercise 24-2 Doug’s Custom Construction Company is
ID: 2450745 • Letter: E
Question
Exercise 24-2
Open Show Work
Exercise 24-2
Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $26,410. Each project will last for 3 years and produce the following net annual cash flows.Year AA BB CC 1 $11,259 $14,665 $18,209 2 14,456 14,665 14,039 3 20,989 14,665 15,429 Total $46,704 $43,995 $47,677
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.)
Explanation / Answer
Payback Period
The most desirable project based on payback period is Project CC with lowest payback period 1.584 years.
The least desirable project based on payback period is Project AA with highest payback period 2.033 years.
Net Present Value
The most desirable project based on net present value is Project CC with highest NPV $12022
The least desirable project based on net present value is Project BB with Lowest NPV $8813
Year Project AA Project BB Project CC Cash Flows Cumulative Cash Flows Cash Flows Cumulative Cash Flows Cash Flows Cumulative Cash Flows 0 -26410 -26410 -26410 -26410 -26410 -26410 1 11259 -15151 14665 -11745 18209 -8201 2 14456 -695 14665 2920 14039 5838 3 20989 20294 14665 17585 15429 21267Related Questions
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