Compute each project payback period

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Question - Jack's Custom manufacturing Company is considering three new projects, each requiring an equipment investment of $21,000. Each project will last for 3 years and 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 depreciation. Jack will not accept any project with a cash payback period over 2 years. Jack's required rate of return is 12%.

Instructions - Compute each project's payback period, indicating the most desirable project and the lease desirable project using this method.

Reference no: EM131820359

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