Question

artinez’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,980. Each project will last for 3 years and produce the following net annual cash flows.

Year |
AA |
BB |
CC |
||||

1 | $7,630 | $10,900 | $14,170 | ||||

2 | 9,810 | 10,900 | 13,080 | ||||

3 | 13,080 | 10,900 | 11,990 | ||||

Total | $30,520 | $32,700 | $39,240 |

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

**(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 CCProject BBProject AA . |

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

The least desirable project based on net present value is
Project CCProject BBProject AA . |

Answer #1

Doug’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
AA
BB
CC
1
$8,540
$12,200
$15,860
2
10,980
12,200
14,640
3
14,640
12,200
13,420
Total
$34,160
$36,600
$43,920
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...

oug’s Custom Construction Company is considering three new
projects, each requiring an equipment investment of $27,500. Each
project will last for 3 years and produce the following net annual
cash flows.
Year
AA
BB
CC
1
$8,750
$12,500
$16,250
2
Unresolved
12,500
15,000
3
15,000
12,500
13,750
Total
$35,000
$37,500
$45,000
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...

U3 Company is considering three long-term capital investment
proposals. Each investment has a useful life of 5 years. Relevant
data on each project are as follows.
Project Bono
Project Edge
Project Clayton
Capital investment
$174,400
$190,750
$214,000
Annual net income:
Year 1
15,260
19,620
29,430
2
15,260
18,530
25,070
3
15,260
17,440
22,890
4
15,260
13,080
14,170
5
15,260
9,810
13,080
Total
$76,300
$78,480
$104,640
Depreciation is computed by the straight-line method with no
salvage value. The company’s cost of capital...

Cardinal Company is considering a project that would require a
$2,500,000 investment in equipment with a useful life of five
years. At the end of five years, the project would terminate and
the equipment would be sold for its salvage value of $200,000. The
company’s discount rate is 12%. The project would provide net
operating income each year as follows:
Sales
$
2,853,000
Variable
expenses
1,200,000
Contribution
margin
1,653,000
Fixed expenses:
Advertising,
salaries, and other
fixed...

The Petty Co. is considering the following three investment
projects.
Use the following information to answer the
question:
American Girl
Free Falling
Breakdown
Present value of cash inflows
$23,200
$58,200
$78,000
Investment Required
$20,000
$48,000
$76,000
Regarding the Net Present Value, which statement is true?
1)
Based on NPV, the Breakdown Project
ranks highest.
2)
Based on NPV, the American Girl Project
ranks lowest.
3)
Based on NPV, the Free Falling Project ranks the highest.
4)
None of the above....

The Petty Co. is considering the following three investment
projects.
Use the following information to answer the
question:
American Girl
Free Falling
Breakdown
Present value of cash inflows
$23,200
$58,200
$78,000
Investment Required
$20,000
$48,000
$76,000
Regarding the Net Present Value, which statement is true?
1)
Based on NPV, the Breakdown Project
ranks highest.
2)
Based on NPV, the American Girl Project
ranks lowest.
3)
Based on NPV, the Free Falling Project ranks the highest.
4)
None of the above....

Vaughn Company is considering a capital investment of $216,000
in additional productive facilities. The new machinery is expected
to have a useful life of 5 years with no salvage value.
Depreciation is by the straight-line method. During the life of the
investment, annual net income and net annual cash flows are
expected to be $18,468 and $45,000, respectively. Vaughn has a 12%
cost of capital rate, which is the required rate of return on the
investment.
Click here to view...

Vilas Company is considering a capital investment of $186,200 in
additional productive facilities. The new machinery is expected to
have a useful life of 5 years with no salvage value. Depreciation
is by the straight-line method. During the life of the investment,
annual net income and net annual cash flows are expected to be
$17,689 and $49,000, respectively. Vilas has a 12% cost of capital
rate, which is the required rate of return on the investment.
Click here to view...

Riverbed Corporation is considering purchasing a new delivery
truck. The truck has many advantages over the company’s current
truck (not the least of which is that it runs). The new truck would
cost $55,500. Because of the increased capacity, reduced
maintenance costs, and increased fuel economy, the new truck is
expected to generate cost savings of $8,400. At the end of 8 years,
the company will sell the truck for an estimated $28,200.
Traditionally the company has used a rule...

Question 1: Salalah Methanol company management
is considering three competing investment
Projects A,B &C
Year
Project A
Project B
Project C
Initial Investment
10000
10000
10000
1
1100
4160
6225
2
3100
5260
8250
3
3800
7360
9275
4
4600
9460
9300
Assume a discount Rate of 5.05%
Use the information below and help the management in choosing
the most desirable Project using Net Present value and
Profitability Index.
Solution: Net Present value
Formula:
Project A
Project B
Project C...

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