Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,180. Each project will?

NetherCraft 0

Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,180. Each project will last for 3 years and produce the following net annual cash flows.

Year AA BB CC

1 $9,882 $12,871 $15,982

2 12,688 12,871 12,322

3 18,422 12,871 13,542

Total $40,992 $38,613 $41,846

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.

Also Check This  A lower quantity demanded of a good reflects. ceteris paribus.

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

(a)

Compute each project’s payback period. (Round answers to 2 decimal places, e.g. 15.25.)

AA

years

BB

years

CC

years

3 Answers

  • Compute each project’s payback period. (Round answers to 2 decimal places, e.g. 15.25.)

    AA

    Net Annual Cash Flow Cumulative Net Cash Flow

    1 $9,882 $9,882

    2 12,688 22,570

    3 18,422 40,992

    $23,180 – 22,570 = $610

    $610 / 18,422 = 0.03

    So Cash payback period 2.03 years

    BB

    $23,180 / 12,871 = 1.80 year

    CC

    Net Annual Cash Flow Cumulative Net Cash Flow

    1. $15,982 $15,982

    2. 12,322 28,304

    3. 13,542 41,846

    $23,180 – 15,982 = $7,198

    $7,198 / 12,322 = 0.58

    So Cash payback period 1.58 years

  • I agree, this was so helpful. Now could you compute the net present value of each project. Am trying but not sure what table to use or how many years? Thank you for your help!

  • Hey I’m here for the first time. I came across this question and I find the replies truly useful. I hope to give something back to the community and help others too.


Leave a Reply

Your email address will not be published. Required fields are marked *