Exercise 26-2 Doug\'s Custom Construction Company is considering three new proje

Question

Exercise 26-2 Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,880. Each project will last for 3 years and produce the following net annual cash flows. Year AA BB CC 1 $7,280 $10,400 $13,520 29,360 10,400 12,480 3 12,480 10,400 11,440 Total $29,120 $31,200 $37,440 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 PV table. (b) Compute the net present value of each project. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round final answers to the nearest whole dollar, e.g. 5,275. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) AA CC which is the most desirable project based on net present value? The most desirable project based on net present value is which is the least desirable project based on net present value? The least desirable project based on net present value is

Explanation / Answer

AA year amount factor PV 0 -22,880 1 -22880 1 7,280 0.89286 6500 2 9,360 0.79719 7462 3 12,480 0.71178 8883 NPV -35 answer BB year amount factor PV 0 -22,880 1 -22880 1 10,400 0.89286 9286 2 10,400 0.79719 8291 3 10,400 0.71178 7403 NPV 2099 answer CC year amount factor PV 0 -22,880 1 -22880 1 13,520 0.89286 12071 2 12,480 0.79719 9949 3 11,440 0.71178 8143 NPV 7283 answer AA -35 BB 2,099 CC 7,283 most desirable project CC least desirable project AA

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