Ivanhoes Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,880. Each
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Ivanhoe’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,880. Each project will last for 3 years and produce the following net annual cash flows.
Year | AA | BB | CC | ||||
---|---|---|---|---|---|---|---|
1 | $7,280 | $10,400 | $13,520 | ||||
2 | 9,360 | 10,400 | 12,480 | ||||
3 | 12,480 | 10,400 | 11,440 | ||||
Total | $29,120 | $31,200 | $37,440 |
The equipment’s salvage value is zero, and Ivanhoe uses straight-line depreciation. Ivanhoe will not accept any project with a cash payback period over 2 years. Ivanhoe’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 | enter the number of years rounded to 2 decimal places | years | |
---|---|---|---|
BB | enter the number of years rounded to 2 decimal places | years | |
CC | enter the number of years rounded to 2 decimal places | years |
Which is the most desirable project?
The most desirable project based on payback period is | select a project Project AAProject BBProject CC |
Which is the least desirable project?
The least desirable project based on payback period is | select a project |
Related Book For
Managerial Accounting Tools for business decision making
ISBN: 978-1118096895
6th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
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