Wriston Company has $290,000 to invest. The company is trying to decide between

Question

Wriston Company has $290,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are as follows:

The working capital needed for project B will be released for investment elsewhere at the end of ten years. Wriston Company uses a 15% 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.

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.)

Wriston Company has $290,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are as follows:

Explanation / Answer

NPV OF PROJECT A = 78000*PVIFA(15%,10) + 31000PVIF(15%,10) - 290000

= 78000*5.019 + 31000*0.247-290000

= $109139

NPV OF PROJECT A = 77000*PVIFA(15%,10) + 290000PVIF(15%,10) - 290000

= 77000*5.019 + 290000*0.247-290000

= $ 168093

ANSWER:

Net Present Value
Project A   $ 109139
Project B   $ 168093

b) PROJECT B

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