last for 3 years and produce the following net annual cash flows Year AA 1 $7,14
ID: 2519426 • Letter: L
Question
last for 3 years and produce the following net annual cash flows Year AA 1 $7,140 $10,200 $13,260 2 9,180 10,200 12,240 3 12,240 10,200 11,220 Total $28,560 $30,600 $36,720 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%. Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.) 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 isExplanation / Answer
Payback period: Project AA: Year Cashflows Cumulative cashflows 0 -22440 -22440 1 7140 -15300 2 9180 -6120 3 12240 6120 Pay back period: 2 yrs+ 6120 /12240 = 2.5 years Proct Bb Year Cashflows 0 -22440 1 10200 2 10200 3 10200 Paybak period = 22440/10200 = 2.2 years Project Cc: Year Cashflows Cumulative cashflows 0 -22440 -22440 1 13260 -9180 2 12240 3060 3 11220 14280 Payback period = 1 year+9180/12240= 1.75 years Req : Project CC is most desirable project. Req: Project Aa is least desitrable cost. NPV Project AA: Year Cashflows PVF @12% Present valaue 0 -22440 1 -22440 1 7140 0.892857 6375 2 9180 0.797194 7318.24 3 12240 0.71178 8712.19 NPVv -34.6 Proct Bb Year Cashflows PVF @12% Present values 0 -22440 1 -22440 1 10200 0.892857 9107.143 2 10200 0.797194 8131.378 3 10200 0.71178 7260.159 NPV 2059 Project Cc: Year Cashflows PVf @ 12% Present value 0 -22440 1 -22440 1 13260 0.892857 11839.29 2 12240 0.797194 9757.653 3 11220 0.71178 7986.174 7143 Req Project CC is mots ddesirable Req Project AA is leasst.
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