Chris's Custom Manufacturing Company is considering three new projects, each requiring an equipment investment of $21,000. Each project will last for 3 years and produce the following net annual cash flows.

The equipment's salvage value is zero, and Chris uses straight-line depreciation. Chris will not accept any project with a cash payback period over 2 years. Chris's 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.
(b) Compute the net present value of each project. Does your evaluation change?

Year 7,000 9,500 $13,000 10,000 11,000 Total $31,000 $28,500 $34,000 2 9,000 15,000 9,500 9,500