Comparison of Projects Using Net Present Value [LO1]

Sharp Company has $15,000 to invest. The company is trying to decide between two alternative uses of the funds as follows:

Invest in Invest in Project A Project B Investment required . . . . . . . . . . . . . . . . . . . . $15,000 $15,000 Annual cash infl ows . . . . . . . . . . . . . . . . . . . . $4,000 $0 Single cash infl ow at the end of 10 years . . . . $60,000 Life of the project . . . . . . . . . . . . . . . . . . . . . . 10 years 10 years Sharp Company uses a 16% discount rate.

Required:

(Ignore income taxes.) Which investment would you recommend that the company accept? Show all computations using net present value. Prepare separate computations for each investment.