Question

Bramble's Custom Construction Company is considering three new projects, each requiring an equipment investment of $26,840. Each project will last for 3 years and produce the following net annual cash flows. Year - 2 AA $8,540 10,980 14,640 $34,160 BB $12,200 12,200 12,200 $36,600 CC $15,860 14,640 13,420 $43,920 Total The equipment's salvage value is zero, and Bramble uses straight-line depreciation. Bramble will not accept any project with a cash payback period over 2 years. Bramble'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.) years BB years years Which is the most desirable project? The most desirable project based on payback period is Which is the least desirable project? The least desirable project based on payback period is

Answer 1

(a) Pay bace periOd cOSt o Each investment 26840 AA C-2-4 8640 -2-8 1098O $19.520 $26.840 19,520 S7820 Pe mauning balance $820 $14,640 &5yeads y-P2,200 y-2-4 12,200 $ 04/400 BB Remaireng balance #6,840-824400 4 8440 +8 000 $12,200 48440 2402 2 yea y--15,860 Romaineng tatanat 6840-815.&60 $10AP0 t $10180 $14 640 1+071 geaus

2-50 yeas AA a 20 yecu BB 15 yeals C Mc deslucbl puofect tased on pay bace peuicd AA least desiuabu puofec based on pay bace peuod ts Net pueent alus AA yea Auesent val cashtlouws Pv daucto 629.5 $ 884-0 1 08928 $8752.15 $10,420.46 & 10980 14,640 inetial envemeny 26,840 43) NPV BB cathtoos year Ruesent Vale PV facte 8 taaoo $10,892.16 08928 IEBEO 3919461 $12,200 868274 $12,200 291800 4 c6,840 Cnidtas inveunmu NPV 2460

Pueent Valua yeau caihtlocos pM.tacro 14,159 80 4 15,860 0.8728 1t,669 54 $14r640 0 t91 9551 01 413,420 0ば 4 35380 $or&40 cnetiau investment NPV$854O $C43) AA $2460 BB $ 8540 Most desiuable puofect based On NPV is ACC teas desiuable poject tal on NP sAA