Net Present Value Analysis of Two Alternatives [LO1]

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 infl ows . . . . . . . . . . . . . . . . . . $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:
(Ignore income taxes.) Which investment alternative (if either) would you recommend that the company accept? Show all computations using the net present value format. Prepare separate computations for each project.