Calculate each project payback period

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Problem - Calculate cash payback and net present value.

Jack's Custom Manufacturing Company is considering three new projects. Each one requires an equipment investment of $21,000, will last for three years, and will produce the following net annual cash flows:

Year       AA          BB           CC

1  $ 7,000  $ 9,500  $13,000

2  9,000   9,500   10,000

3  15,000  9,500  11,000

Total  $31,000  $28,500  $34,000

The equipment's salvage value is zero, and Jack uses straight-line amortization. Jack will not accept any project with a payback period over two years. Jack's required rate of return is 12%.

Calculate each project's payback period, indicating the most desirable project and the least desirable project using this method.

Calculate the net present value of each project.

Reference no: EM131811622

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