Dougs Custom Construction Company is considering three new projects, each requiring an equipment investment of $24,890. Each project will last for 3 years and produce the following net annual cash flows:

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

Compute each projects payback period.

Which is the most desirable project?

Which is the least desirable project?

Compute the net present value of each project.

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

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

Year 1 $10,611 $13,821 $17,161 2 13,624 13,821 13,231 3 19,781 13,821 14,541 Total $44,016 $41,463 $44,933