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E25 - 2 Compute cash payback period and net present value 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. 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%. 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 and assume in your computations that cash flows occur evenly throughout the year.) (b) Compute the net present value of each project. Does your evaluation change? (Round to nearest dollar.) NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a a) Compute each project's payback period, indicating the most desirable project and the least desirable project using this method. (Round to two decimals and assume in your computations that cash flows occur evenly throughout the year.) Cash Payback Period: Cost of capital investment Cumulative net cash flow, year 2 Remaining cost to be recovered (a) Net cash flow, year 3 (b) Payback period, year 3 (a) (b) Total cash payback period in years \begin{tabular}{|c|} \hline Value \\ \hline 16,000 \\ \hline? \\ \hline 12,000 \\ \hline Value \\ \hline 2.5 \\ \hline \hline \end{tabular} Project BB Cash Payback Period: Cost of capital investment (a) Net annual cash flow Total cash payback period in years (a)(b) \begin{tabular}{|c|} \hline Value \\ \hline Value \\ \hline 2.2 \\ \hline \end{tabular} Project CC \begin{tabular}{|c|c|c|} \hline & Net Annual & Cumulative \\ \hline Year & Cash Flow & Net Cash Flow \\ \hline 1 & $13,000 & $9,000 \\ \hline 2 & 12,000 & $3,000 \\ \hline 3 & 11,000 & $14,000 \\ \hline \end{tabular} Cash Payback Period: Cost of capital investment Cumulative net cash flow, year 1 Remaining cost to be recovered (a) Net cash flow, year 2 (b) Payback period, year 2 (a) (b) Total cash payback period in years \begin{tabular}{|c|} \hline Value \\ \hline Value \\ \hline? \\ \hline Value \\ \hline Value \\ \hline 1.8 \\ \hline \hline \end{tabular} Response: Compute the net present value of each project. Does your evaluation change? (Round to nearest dollar.)