Wriston Company has $300,000 to invest. The company is trying to - 17420

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yousafbhutta

yousafbhutta

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  • Posted on: Mon 27 May, 2013
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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

$ correct        

  Project B

 correct        


   

b.

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

 

 

 

correct

 

Solution Description

Please do

Attachments
Ch13 Q 5.docx
Ch13 Q 5.docx