Sargent 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.
The equipment will have no salvage value at the end of its three-year life. Sargent Company uses straight-line depreciation. Sargent 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

Sargent 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.  
The equipment will have no salvage value at the end of its three-year life. Sargent Company uses straight-line depreciation. Sargent 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 Sargent 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.  
The equipment will have no salvage value at the end of its three-year life. Sargent Company uses straight-line depreciation. Sargent 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?

Sargent Company Is Considering Two New Projects, Each Requiring an Equipment