Buford Manufacturing Company is considering three new projects, each requiring an equipment investment of $22,000. Each project

Question:

Buford Manufacturing Company is considering three new projects, each requiring an equipment investment of $22,000. Each project will last for 3 years and produce the following cash inflows.

The equipment€™s salvage value is zero. Buford uses straight-line depreciation. Buford will not accept any project with a payback period over 2 years. Buford€™s minimum required rate of return is 12%.

Instructions
(a) Compute each project€™s payback period, indicating the most desirable project and the least desirable project using this method. (Round to two decimals.)
(b) Compute the net present value of each project. Does your evaluation change? (Round to nearestdollar.)

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...