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 straightline depreciation. Doug will not accept any project with a cash payback period over 2 years. Doug’s required rate of return is 12%.
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(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

$15,982 $15,982

12,322 28,304

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!

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