Exercise 24-2 Exercise 24-4 Exercise 24-2 Your answer is partially correct. Try
ID: 2561731 • Letter: E
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Exercise 24-2
Exercise 24-4
Exercise 24-2 Your answer is partially correct. Try again. Doug's Custom Construction Compan is considering three new projects, each requiring an equipment investment of 27,060. Each project will last for 3 years and produce the following net annual cash flows Year AA 1 $8,610 12,30015,990 11,070 12,300 14,760 3 14,760 12,300 13,530 Total $34,440 36,900 44,280 The equipment's salvage value is zaro, and Doug uses straight-line depreciation. Doug will not accept any pro ect th a cas pa ba p iod over 2 years. Dcu s req ec rate a return 2·C ne ew PV Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.) 2· 'fears 2.06 ears 1.75 rears Which is the most desirable project? The most desirable project based on payback period is TProject CCExplanation / Answer
Exercise 24-2
Req A: Payback period
Exercise 24-2
Req A: Payback period
Initial investment of each project = $ 27,060 Project- AA Year Cash Inflows Cumulative cash inflow 1 8610 8610 2 11070 19680 3 14760 34440 Payback period = 2 years + (Investment- cumulative cash inflows of 2 nd year) / cash inflow of thrid year 2 years + (27060-19680)/14760 = 2.5 years Project- BB Payback period = Initial Investment / Annual cash inflows 27060 / 12300 = 2.2 years Project- CC Year Cash Inflows Cumulative cash inflow 1 15990 15990 2 14760 30750 3 13530 44280 Payback period = 1year + (Investment- cumulative cash inflows of 1st year) / cash inflow of Second year 1 year + (27060-15990)/14760 = 1.75 years Project Payback Period AA 2.5 years BB 2.2 years CC 1.75 years Most desirable project is Project CC with least payback period of 1.75 years Least desirable project is Project AA with maximum payback period of 2.5 years Req B: NPV Project AA Project BB Project CC Year PV Factor at 12% Cash inflows Present value Cash inflows Present value Cash inflows Present value 1 1.000 8610 8610.00 12300 12300.00 15990 15990.00 2 0.893 11070 9883.93 12300 10982.14 14760 13178.57 3 0.797 14760 11766.58 12300 9805.48 13530 10786.03 Present value of cash inflows 30260.51 33087.63 39954.60 Less: Initial investment 27060.00 27060.00 27060.00 Net present value 3200.51 6027.63 12894.60 Most desirable project is Project CC with highest NPV of $ 12,894.60 Least Desirable project is Project AA with lowest NPV of $ 3200.51 .Related Questions
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