Suzaki Manufacturing 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 cash inflows.
|
Year |
AA |
BB |
CC |
|
1 |
$ 7,000 |
$ 9,500 |
$13,000 |
|
2 |
9,000 |
9,500 |
10,000 |
|
3 |
15,000 |
9,500 |
9,000 |
|
Total |
$31,000 |
$28,500 |
$32,000 |
The equipment’s salvage value is zero. Suzaki uses straight line depreciation. Suzaki will not accept any project with a payback period over 2 years. Suzaki’s minimum 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.)
(b) Compute the net present value of each project. Does your evaluation change? (Round to nearest dollar.)