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Cepeda Manufacturing Company is considering three new projects, each requiring an equipment investment of $20,000. Each project will last for 3 years and produce the following cash inflows.
The equipment's salvage value is zero. Cepeda uses straight-line depreciation. Cepeda will not accept any project with a payback period over 2 years. Cepeda'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.)
Return
In finance, it refers to the profit or loss made on an investment over a specified period, expressed as a percentage of the initial investment.
Common Stockholders' Equity
The portion of a company's equity that is attributable to common stockholders, calculated as total assets minus total liabilities minus preferred stock equity.
Inventory Turnover
Inventory turnover is a measure of how frequently a company sells and replaces its stock of goods within a certain period, indicating the efficiency of inventory management.
Inventory Management
The process of ordering, storing, using, and selling a company's inventory, which includes both raw materials and finished goods.
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