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. Year AA BB CC 1 $7,000 $10,000 $13,000 2 9,000 10,000 12,000 3 12,000 10,000 11,000 Total $28,000 $30,000 $36,000 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 the factor table. (a) Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.) AA 2.5 years BB 2.2 years CC 1.75 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 Project CC (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 BB 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
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. Year AA BB CC 1 $7,000 $10,000 $13,000 2 9,000 10,000 12,000 3 12,000 10,000 11,000 Total $28,000 $30,000 $36,000 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 the factor table. (a) Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.) AA 2.5 years BB 2.2 years CC 1.75 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 Project CC (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 BB 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
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows
Section: Chapter Questions
Problem 10MC
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Transcribed Image Text: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.
Year
AA
BB
CC
1
$7,000
$10,000
$13,000
2
9,000
10,000
12,000
3
12,000
10,000
11,000
Total
$28,000
$30,000
$36,000
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 the factor table.
(a)
Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.)
AA
2.5
years
BB
2.2
years
CC
1.75
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
Project CC
(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
BB
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
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