Mountain View Hospital has purchased new lab equipment for $182,622. The equipment is expected to last for three years and to provide cash inflows as follows: (Ignore income taxes.)

Year 1	$	56,000
Year 2	$	74,000
Year 3		?

View Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factor(s) using table.

Required:

Assuming that the equipment will yield exactly a 10% rate of return, what is the expected cash inflow for Year 3? (Round discount factor(s) to 3 decimal places.)

Cash Inflow
Choose Numerator:	/	Choose Denominator:	=	Cash Inflow
Present value of Year 3 cash inflow	/	Present value factor	=	Cash Inflow
	/		=

5

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 inflows	$56,000	$48,000
Salvage value of equipment in nine years	$14,000	$0
Life of the project	9 years	9 years

The working capital needed for project B will be released for investment elsewhere at the end of nine years. Wriston Company uses a 10% discount rate. (Ignore income taxes.)

View Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factor(s) using table.

Required:

a.

Calculate net present value for each project. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)

Item	Year(s)	Amount of Cash Flows	10% Factor	Present Value of Cash Flows
Project A:
Cost of the equipment	Now	)
Annual cash inflows	1-9
Salvage value of the equipment	9
Net present value
Project B:
Working capital investment	Now
Annual cash inflows	1-9
Working capital released	9
Net present value

b.	Which investment alternative (if either) would you recommend that the company accept? Circle or highlight your answer. Project A Project B