Doug\'s Custom Construction Company is considering three new projects, each requ
ID: 2487439 • Letter: D
Question
Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $19,380. 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 percentage. Compute each project's payback period. AA years BB years CC 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 Compute the net present value or each project. (Enter negative amounts using either a negative a negative sign preceding the number e.g. -45 or parentheses e.g.(45). Round answers to the nearest whole dollar, e.g. 5,275 AA BB CCExplanation / Answer
AA
BB
CC
CASH INFLOW
34272
32283
34986
CASH OUTFLOW
19380
19380
19380
PAYBACK PEROID
1.76
1.66
1.81
PROJECT AA
1
2
3
CASH INFLOW
8262
10608
15402
PESENT VALUE FACTOR 12%
0.89286
0.797194
0.71178
PRESENT VALUE OF CASH INFLOW OF PROJECT AA
7376.81
8456.63
10962.84
26796.28
PRESENT VALUE OF CASH OUTLOW OF PROJECT AA
19380
NET PRESENT VALUE
7416.28
PROJECT BB
1
2
3
CASH INFLOW
10761
10761
10761
PESENT VALUE FACTOR 12%
0.89286
0.797194
0.71178
PRESENT VALUE OF CASH INFLOW OF PROJECT BB
9608.07
8578.60
7659.46
25846.14
PRESENT VALUE OF CASH OUTLOW OF PROJECT BB
19380
NET PRESENT VALUE
6466.14
PROJECT CC
1
2
3
CASH INFLOW
13362
10302
11322
PESENT VALUE FACTOR 12%
0.89286
0.797194
0.71178
PRESENT VALUE OF CASH INFLOW OF PROJECT CC
11930.39
8212.69
8058.77
28201.86
PRESENT VALUE OF CASH OUTLOW OF PROJECT CC
19380
NET PRESENT VALUE
8821.86
AA
BB
CC
CASH INFLOW
34272
32283
34986
CASH OUTFLOW
19380
19380
19380
PAYBACK PEROID
1.76
1.66
1.81
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