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