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Exercise 269
Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,440. Each project will last for 3 years and produce the following net annual cash flows.
Year  AA  BB  CC  
1  $7,140  $10,200  $13,260  
2  9,180  10,200  12,240  
3  12,240  10,200  11,220  
Total  $28,560  $30,600 
$36,720 

The equipment’s salvage value is zero, and Doug uses straightline 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.
Click here to view PV of Annuity table.
(a)
Compute each project’s payback period. (Round answers to 2 decimal places, e.g. 15.25.)
AA  years  
BB  years  
CC  years 
Which is the most desirable project?
The most desirable project based on payback period is 
Project AAProject BBProject CC 
Which is the least desirable project?
The least desirable project based on payback period is 
Project BBProject AAProject CC 
(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.)
AA  
BB  
CC 
Which is the most desirable project based on net present value?
The most desirable project based on net present value is
Project AAProject CCProject BB . 
Which is the least desirable project based on net present value?
The least desirable project based on net present value is
Project AAProject BBProject CC 
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