Rushforth Manufacturing has $90,000 to invest in wither Project A or Project B.
ID: 2349129 • Letter: R
Question
Rushforth Manufacturing has $90,000 to invest in wither Project A or Project B. The following data are available on these projects:Project A
Cost of equipment needed now... $90,000
Annual cash operating inflows... $29,000
Salvage value of equipment in 6 years... $10,000
Project B
Cost of equipment needed now... $40,000
Working capital investment needed now... $50,000
Annual cash operating inflows... $25,000
Release of working capital investment in 6 years... $50,000
Both projects will have a useful life of 6 years. Rushforth=s requires rate of return is 14%.
Net present value of Project A is:
A. $27,341
B. $94,000
C. $71,000
D. $117,341
Net present value of Project B is:
A. $57,225
B. $30,025
C. $7,225
D. $13,350
Please show work.
Explanation / Answer
a)
Year
Amount
14% Factor
Present Value
Equipment cost..........................
Now
$(90,000)
1.000
$(90,000)
Net annual cash inflow.................
1-6
29,000
3.889
112,781
Salvage value, equipment.............
6
10,000
0.456
4,560
Net present value.......................
$27,341
A. $27,341..............(answer)
b)
Year(s)
Amount
16% Factor
Present Value
Equipment cost........................
Now
$(40,000)
1.000
$(40,000)
Working capital required.........
Now
(50,000)
1.000
(50,000)
Net annual cash inflow............
1-6
25,000
3.889
97,225
Release of working capital.......
6
50,000
0.456
22,800
Net present value.....................
$30,025
B. $30,025..............(answer)
a)
Year
Amount
14% Factor
Present Value
Equipment cost..........................
Now
$(90,000)
1.000
$(90,000)
Net annual cash inflow.................
1-6
29,000
3.889
112,781
Salvage value, equipment.............
6
10,000
0.456
4,560
Net present value.......................
$27,341
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