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Most Desirable and Least Desirable Project

Chris's Custom Manufacturing Company is considering three new projects, each requiring an equipment investment of $24,380. Each project will last for 3 years and produce the following net annual cash flows.
Year AA BB CC
1 $9,072 $11,816 $14,672
2 11,648 11,816 11,312
3 16,912 11,816 12,432
Total $37,632 $35,448 $38,416

The equipment's salvage value is zero, and Chris uses straight-line depreciation. Chris will not accept any project with a cash payback period over 2 years. Chris's required rate of return is 12%.

Compute each project's payback period, indicating the most desirable project and the least desirable project using this method. (Round answers to 2 decimals, e.g. 10.50, and assume in your computations that cash flows occur evenly throughout the year.)

Compute the net present value of each project. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round computations and final answer for present value to 0 decimal places, e.g. 125. Round computations for Discount Factor to 5 decimal places.)
AA $

BB $

CC $

The most desirable project based on net present value is ?
The least desirable project based on net present value is ?

Scheer Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $447,400. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $108,819 for the next 6 years. Management requires a 14% rate of return on all new investments.
Calculate the internal rate of return on this new machine. (Use the tables to determine the percentage. Round answer 0 decimal places, e.g. 10.)
Internal rate of return %
Should the investment be accepted?

Haley's Hair Salon is considering opening a new location in Pompador, California. The cost of building a new salon is $277,300. A new salon will normally generate annual revenues of $70,900, with annual expenses (including depreciation) of $39,400. At the end of 15 years the salon will have a salvage value of $74,500. Calculate the annual rate of return on the project. (Round answer to 0 decimal places, e.g. 125.)
%

Solution Preview

See attached. Answers in Word file and workings in Excel.

Chris's Custom Manufacturing Company is considering three new projects, each requiring an equipment investment of $24,380. Each project will last for 3 years and produce the following net annual cash flows.
Year AA BB CC
1 $9,072 $11,816 $14,672
2 11,648 11,816 11,312
3 16,912 11,816 12,432
Total $37,632 $35,448 $38,416
The equipment's salvage value is zero, and Chris uses straight-line depreciation. Chris will not accept any project with a cash payback period over 2 years. Chris's required rate of return is 12%.

Correct.

Compute each project's ...

Solution Summary

The solution computes each project's payback period, and net present value indicating the most desirable project and the least desirable project using this method.

$2.19