Maurice Tutor

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Category > Accounting Posted 16 Aug 2017 My Price 11.00

Doug’s Custom Construction Company

E12-2 Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,000. Each project will last for 3 years and produce the following net annual cash flows.

Year            AA                 BB                CC

1

 

$ 7,000

 

$10,000

 

$13,000

2

 

9,000

 

10,000

 

12,000

3

 

12,000

 

10,000

 

11,000

Total

 

$28,000

 

$30,000

 

$36,000

 

                                                                       

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%.

Instructions

(a)  Compute each project’s payback period, indicating the most desirable project and the least desirable project using this method. (Round to two decimals and assume in your computations that cash flows occur evenly throughout the year.)

(b)  Compute the net present value of each project. Does your evaluation change? (Round to nearest dollar.)

Answers

Maurice Tutor
(5)
Status NEW Posted 16 Aug 2017 06:08 PM My Price 11.00

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