Monty Manufacturing Company is considering three new projects, each requiring an equipment investment of $25,200. Each project will last for 3 years and produce the following cash flows.Year123TotalAA(a)16,000$8,000 $10,900 $12,00010,000BB$34,000 $32,70010,900Click here to view PV tables.10,900Payback periodThe salvage value for each of the projects is zero. Monty uses straight-line depreciation. Monty will not accept any project with a payback period over 2.2 years. Monty's minimum required rate of return is 12%.Most desirableLeast desirableCC11,000Your answer has been saved. See score details after the due date.10,000Compute each project's payback period. (Round answers to 2 decimal places, e.g. 52.75.)$33,000Project CCAAIndicating the most desirable project and the least desirable project using this method.Project AA V2.72 yearsBB2.31 yearsCC2.20 yearsAttempts: 1 of 1 used (b)Compute the net present value of each project. (Use the above table.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to O decimal places, e.g. 5,275.)Net present value $Most desirableLeast desirableAAIndicating the most desirable project and the least desirable project using this method.Save for Later$BB$CCAttempts: 0 of 1 usedSubmit Answer

Payback period is the time period in which initial investment can be recovered. The project which takes least time is preferable. Present value is today's value of all future cash inflows and outflows.Payback Period AA. (7200/16000) 2.45 years BB. (25209/10900) 2.31 years CC (2200/10000) 2.22 years The most desirable project based on payback period is project CC. The least desirable project based on payback period is project AAB NPV AA $ 1,303 BB $ 980 CC $ 1,401 The most desirable project based on net present value is project CC The least desirable project based on net present value is project BB NPV of project AA = 8,000 / ( 1.12 ) + 10,000 / ( 1.12 )2 + 16,000 / ( 1.12) 3 - 25,200 = 7,142.86 + 7,971.94 + 11,388.48 - 25,200 = 1,303.28 NPV of project BB = 10,900 x 0.89286 + 10,900 x 0.79719 + 10,900 x 0.71178 - 25,200 = 979.95 NPV of project CC = 12,000 x 0.89286 + 11,000 x 0.79719 + 10,000 x 0.71178 - 25,200 = 10,714.32 + 8,769.09 + 7,117.80 - 25,200 = 1,401.21

Business

Accounting

Monty Manufacturing Company is considering three new projects, each requiring an equipment investment of $25,200. Each project will last for 3 years and produce the following cash flows. Year 1 2 3 Total AA BB CC $8,000 $10,900 $12,000 10,000 10,900 11,000 16,000 10,900 10,000 $34,000 $32,700 $33,000 The salvage value for each of the projects is zero. Monty uses straight-line depreciation. Monty will not accept any project with a payback period over 2.2 years. Monty's minimum required rate of return is 12%. Click here to view PV tables. (a) Your answer has been saved. See score details after the due date. Compute each project's payback period. (Round answers to 2 decimal places, e.g. 52.75.) Payback period Most desirable Least desirable AA Project CC Indicating the most desirable project and the least desirable project using this method. 2.72 years Project AA V BB 2.31 years CC 2.20 years Attempts: 1 of 1 used

Monty Manufacturing Company is considering three new projects, each requiring an equipment investment of $25,200. Each project will last for 3 years and produce the following cash flows. Year 1 2 3 Total AA BB CC $8,000 $10,900 $12,000 10,000 10,900 11,000 16,000 10,900 10,000 $34,000 $32,700 $33,000 The salvage value for each of the projects is zero. Monty uses straight-line depreciation. Monty will not accept any project with a payback period over 2.2 years. Monty's minimum required rate of return is 12%. Click here to view PV tables. (a) Your answer has been saved. See score details after the due date. Compute each project's payback period. (Round answers to 2 decimal places, e.g. 52.75.) Payback period Most desirable Least desirable AA Project CC Indicating the most desirable project and the least desirable project using this method. 2.72 years Project AA V BB 2.31 years CC 2.20 years Attempts: 1 of 1 used

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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