10 acct questions 5

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Crane’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 �ows.

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 Crane uses straight-line depreciation. Crane will not accept any project with a cash payback period over 2 years. Crane’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

221 HW7 Ch 26 Ch 27

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BB years

CC 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

(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 �nal 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 $

221 HW7 Ch 26 Ch 27

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CC $

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

The most desirable project based on net present value is .

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

The least desirable project based on net present value is .

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221 HW7 Ch 26 Ch 27

Question 10 of 10 - / 1