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Compute each project payback period
Course:- Managerial Accounting
Reference No.:- EM131168937




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Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $25,840. Each project will last for 3 years and produce the following net annual cash flows.

Year

AA

BB

CC

1

$11,016

$14,348

$17,816

2

14,144

14,348

13,736

3

20,536

14,348

15,096

Total

$45,696

$43,044

$46,648

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%.

Compute each project's payback period.

Which is the most desirable project?

Which is the least desirable project?

Compute the net present value of each project.

Which is the most desirable project based on net present value?

Which is the least desirable project based on net present value?




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