Grayson Company is considering two new projects each requiring an equipment investment of $72000. Each project will last for three years and produce the following annual net income.
$\begin{array} { c r r }
\text { Year } & { \text { TIP } } & { \text { TOP } } \
1 & \$ 8,000 & \$ 9,000 \
2 & 9,000 & 9,000 \
3 & 14,000 & 9,000
\end{array}$ 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: Instructions
(a) Compute the net present value of each project.
(b) Which project should be selected? Why?

Question

Grayson Company is considering two new projects each requiring an equipment investment of $72000. Each project will last for three years and produce the following annual net income. 
$\begin{array} { c r r } 
\text { Year } & { \text { TIP } } & { \text { TOP } } \
1 & \$ 8,000 & \$ 9,000 \
2 & 9,000 & 9,000 \
3 & 14,000 & 9,000
\end{array}$ 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:  Instructions
(a) Compute the net present value of each project.
(b) Which project should be selected? Why?

Quizplus · Accepted Answer

The Answer of Grayson Company is considering two new projects each requiring an equipment investment of $72000. Each project will last for three years and produce the following annual net income. 
$\begin{array} { c r r } 
\text { Year } & { \text { TIP } } & { \text { TOP } } \
1 & \$ 8,000 & \$ 9,000 \
2 & 9,000 & 9,000 \
3 & 14,000 & 9,000
\end{array}$ 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:  Instructions
(a) Compute the net present value of each project.
(b) Which project should be selected? Why?

Grayson Company Is Considering Two New Projects Each Requiring an Equipment