Calculate net present value for each project

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Question - Wriston Company has $300,000 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

$300,000

$0

Working capital investment required

$0

$300,000

Annual cash inflows

$80,000

$60,000

Salvage value of equipment in seven years

$20,000

$0

Life of the project

7 years

7 years

The working capital needed for project B will be released for investment elsewhere at the end of seven years. Wriston Company uses a 20% discount rate.

Required:

a. Calculate net present value for each project.

b. Which investments alternatives (if either) would you recommend that the company accept?

Reference no: EM131590197

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