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Category > Accounting Posted 11 Aug 2017 My Price 7.00

Wriston Company has

Exercise 11-8 Net Present Value Analysis of Two Alternatives [LO1]

Wriston Company has $400,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are as follows:

 

  A B
Cost of equipment required $ 400,000 $ 0
Working capital investment required $ 0 $ 400,000
Annual cash inflows $ 76,000 $ 65,000
Salvage value of equipment in five years $ 18,000 $ 0
Life of the project   5 years   5 years

The working capital needed for project B will be released for investment elsewhere at the end of five years. Wriston Company uses a 10% discount rate. (Ignore income taxes.)

 

Click here to view Exhibit 11B-1 andExhibit 11B-2, to determine the appropriate discount factor(s) using tables.

 

Required:
a.

Calculate net present value for each project. (Negative amounts should be indicated by a minus sign.Leave no cells blank - be certain to enter "0" wherever required. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answers to the nearest whole dollar.)

 

  Net Present Value
Project A $
Project B $
b. Which investment alternative (if either) would you recommend that the company accept?
   
 
  Project B
  Project A

 

Answers

Maurice Tutor
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Status NEW Posted 11 Aug 2017 12:08 PM My Price 7.00

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