Sierra Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,000.

Question:

Sierra Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,000. It will have a useful life of 4 years and no salvage value. Annual revenues would increase by $80,000, and annual expenses (excluding depreciation) would increase by $41,000. Sierra uses the straight-line method to compute depreciation expense. The company’s required rate of return is 12%. Compute the annual rate of return.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...