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Exercise 26 9 Dougs Custom Construction Company is considering three new projects each requiring an equipment investment of $22440 Each project will last for 3 years and produce the following net

Exercise 26-9

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 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%.

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

Apr 08 2020 Read more Less More

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