Question
Grayson Company is considering two new projects, each requiring an equipment investment of $72,000. Each project will last for three years and produce the following
Grayson Company is considering two new projects, each requiring an equipment investment of $72,000. Each project will last for three years and produce the following annual net income.
|
| Year | TIP | TOP |
|
| 1 | $ 8,000 | $ 9,000 |
|
| 2 | 9,000 | 9,000 |
|
| 3 | 14,000 | 9,000 |
|
|
| $31,000 | $27,000 |
The equipment will have no salvage value at the end of its three-year life. Grayson Company uses straight-line depreciation. Grayson requires a minimum rate of return of 12%. Present value data are as follows:
|
|
| Present Value of 1 |
| Present Value of an Annuity of 1 |
|
| Period | 12% |
| Period | 12% |
|
| 1 | .893 | 1 | .893 |
|
| 2 | .797 | 2 | 1.690 |
|
| 3 | .712 | 3 | 2.402 |
Instructions
|
| Compute the net present value of each project. |
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Intermediate Accounting 2007 FASB Update Volume 1
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
12th Edition
0470128755, 978-0470128756
