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Doug’s Custom Construction 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 net annual cash flows.

| | | | | | | |

1 | | $7,000 | | $10,000 | | $13,000 | |

2 | | 9,000 | | 10,000 | | 12,000 | |

3 | | 12,000 | | 10,000 | | 11,000 | |

Total | | $28,000 | | $30,000 | | $36,000 | |

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 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 |

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. **

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 BBProject AAProject CC. | |

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

The least desirable project based on net present value is Project AAProject CCProject BB. |

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