Flounder’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,320. Each project will last for 3 years and produce the following net annual cash flows. Year AA BB CC 1 $7,420 $10,600 $13,780 2 9,540 10,600 12,720 3 12,720 10,600 11,660 Total $29,680 $31,800 $38,160 The equipment’s salvage value is zero, and Flounder uses straight-line depreciation. Flounder will not accept any project with a cash payback period over 2 years. Flounder’s required rate of return is 12%.Click here to view PV 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 BBProject AAProject CC . Which is the least desirable project based on net present value? The least desirable project based on net present value is Project BBProject AAProject CC . Click if you would like to Show Work for this question: Open Show Work

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 17P

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Flounder’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,320. Each project will last for 3 years and produce the following net annual cash flows.

Year	AA	BB	CC
1	$7,420	$10,600	$13,780
2	9,540	10,600	12,720
3	12,720	10,600	11,660
Total	$29,680	$31,800	$38,160

The equipment’s salvage value is zero, and Flounder uses straight-line depreciation. Flounder will not accept any project with a cash payback period over 2 years. Flounder’s required rate of return is 12%.

Click here to view PV 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 BBProject AAProject CC

Which is the least desirable project based on net present value?

The least desirable project based on net present value is

Project BBProject AAProject CC

Click if you would like to Show Work for this question:

Open Show Work

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