Wriston Company has $300,000 to invest

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

$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. (Ignore income taxes.)



Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.



Required:



a.

Calculate net present value for each project. (Negative amount 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, intermediate and final answers to the nearest dollar amount. Omit the \"$\" sign in your response.)





Net Present Value

Project A

$

Project B





b.

Which investment alternative (if either) would you recommend that the company accept?



Click here for the SOLUTION