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Exercise 11-8 Net Present Value Analysis of Two Alternatives [LO1] Wriston Company has $310,000 to invest. The company is trying to decide between two alternative

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

Wriston Company has $310,000 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 $ 310,000 $ 0
Working capital investment required $ 0 $ 310,000
Annual cash inflows $ 75,000 $ 50,000
Salvage value of equipment in eight years $ 15,500 $ 0
Life of the project 8 years 8 years

The working capital needed for project B will be released for investment elsewhere at the end of eight years. Wriston Company uses a 11% discount rate. (Ignore income taxes.)

Click here to view Exhibit 11B-1 and Exhibit 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

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