Paramount Carpets Company is considering purchasing new equipment costing $700,000. The company's management has estimated that the equipment will generate cash flows as follows:Year Net Cash Flow 1 $200,0002 200,0003 250,0004 250,0005 150,000 The following details are provided by Doppler Systems: Project AProject BProject CProject DInitial investment$420,000$200,000$550,000$500,000PV of cash inflows$570,000$380,000$800,000$390,000Payback period (years)3.63.24.02.0NPV of project$150,000$180,000$250,000-$110,000If Doppler can fund only ONE of the four projects, which one should they fund AND WHY? (hint; consider the profitability indices)

The Payback period, NPV and profitability index, all are capital budgeting methods. Payback period -…

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Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 18EB: Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the...

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Paramount Carpets Company is considering purchasing new equipment costing $700,000. The company's management has estimated that the equipment will generate cash flows as follows:

Year Net Cash Flow

1 $200,000

2 200,000

3 250,000

4 250,000

5 150,000

The following details are provided by Doppler Systems:

	Project A	Project B	Project C	Project D
Initial investment	$420,000	$200,000	$550,000	$500,000
PV of cash inflows	$570,000	$380,000	$800,000	$390,000
Payback period (years)	3.6	3.2	4.0	2.0
NPV of project	$150,000	$180,000	$250,000	-$110,000

If Doppler can fund only ONE of the four projects, which one should they fund AND WHY? (hint; consider the profitability indices)

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