7) Whitney Company is contemplating three different equipment investments. The relevant data follows:

Proposal D Proposal O Proposal G

Cost $200,000 $300,000 $830,000

Annual cash savings (end of year) $40,000 $70,000 $150,000

Terminal salvage value $10,000 $5,000 $20,000

Estimated useful life in years 10 10 10

Minimum desired rate of return 12% 12% 12%

Method of depreciation Straight-line Straight-line Straight-line

The present value factor of an ordinary annuity of one for 10 periods at 12% is 5.6502.

The present value factor of one for 10 periods at 12% is 0.322.

Required:

A) Compute the net present value of each investment. Ignore income taxes.

B) If only one investment can be acquired, which investment should be chosen?