Ack's Custom Manufacturing Company is considering three new projects. Each one requires an equipment investment...
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Accounting
Ack's Custom Manufacturing Company is considering three new projects. Each one requires an equipment investment of $25,000, will last for
three years, and will produce the following net annual
cash flows:
Year AA BB CC
1 $7,000 $9,600 $13,000
2 9,000 9,600 9,000
3 12,000 9,600 11,000
Total $28,000 $28,800 $33,000
The equipment's salvage value is zero, and Jack uses straight -line depreciation. Jack will not accept any project with a payback period longer than two and a half years. Jack's required rate of return is
12%.
Required:
(a) Calculate each project's payback period, indicating the most desirable project and the least
desirable project using this method. (Round to two decimals and use average annual cash flows in
(b) Calculate the net present value of each project. Does your evaluation change? (Round to the nearest dollar.
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