Doug\'s Custom Construction Company is considering three new projects, each requ

Question

Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,000. Each project will last for 3 years and produce the following net annual cash flows. of net annual cash flows, Year 1$7,000 $10,000 $13,000 9,000 10,000 12,000 3 12,000 10,000 11,000 Total $28,000 $30,000 $36,000 2 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. Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.,) years years

Explanation / Answer

A)Pay back period for project AA = 2 years + (22000-16000)/12000 = 2.5 Years

B)Pay back period for project BB = 2 years + (22000-20000)/10000 = 2.2 years

Qustion no 2:

NPV = 21966.11-22000 =$ -34

Year Cash flow PVF@12% DISCCF 1 7000 0.8928571 6250 2 9000 0.7971939 7174.745 3 12000 0.7117802 8541.363 21966.11

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