Exercise 11-6 Comparison of Projects Using Net Present Value [LO1] Sharp Company
ID: 2505279 • Letter: E
Question
Exercise 11-6 Comparison of Projects Using Net Present Value [LO1]
Sharp Company has $31,000 to invest. The company is trying to decide between two alternative uses of the funds as follows:
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
Determine the net present value. (Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answers to the nearest whole dollar.)
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Sharp Company has $31,000 to invest. The company is trying to decide between two alternative uses of the funds as follows:
Explanation / Answer
Sharp Company has $31,000 to invest. The company is trying to decide between two alternative uses of the funds as follows:
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
Determine the net present value. (Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answers to the nearest whole dollar.)
Working:
Net Present Value :
Project A = 5000*PVIFA(8%,11) -31000
Project A = 5000*7.139 -31000
Project A = $ 4695
Project B = 46000*PVIF(8%,11) - 31000
Project B = 46000*0.429 - 31000
Project B = -11266
Invest inProject A Invest in
Project B Investment required $ 31,000 $ 31,000 Annual cash inflows $ 5,000 $ 0 Single cash inflow at the end of 11 years $ 46,000 Life of the project 11 years 11 years
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