Compute the Net Present Value of Each Project
Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,100. Each project will last for 3 years and produce the following net annual cash flows.
| Year | AA | BB | CC | |||
| 1 | $7,350 | $10,500 | $13,650 | |||
| 2 | 9,450 | 10,500 | 12,600 | |||
| 3 | 12,600 | 10,500 | 11,550 | |||
| Total | $29,400 | $31,500 | $37,800 |
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.
(a) Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.)
Which is the most desirable project?
Which is the least desirable project?
(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.)
-
Rating:
/5
