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Lambert Manufacturing has $100,000 to invest in either Project A or Project B. The following data are available on these projects (Ignore income taxes):
Project A Project B
Cost of equipment needed now $100,000 $60,000
Working capital investment needed now $0 $40,000
Annual cash operating inflows $40,000 $35,000
Salvage value of equipment in 6 years $10,000 $0
Refer to Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Both projects will have a useful life of 6 years and the total cost approach to net present value analysis. At the end of 6 years, the working capital investment will be released for use elsewhere. Lambert's required rate of return is 14%. The net present value of Project B is:_____.
A) $90,356.
B) $76,115.
C) $36,115.
D) $54,356.

Respuesta :

Answer:

C) $36,115.

Explanation:

Net present value is the present value of after-tax cash flows from an investment less the amount invested.  

NPV can be calculated using a financial calculator  

For project A

Cost of the equipment = $60,000 + 440,000 = $100,000

Cash flow in year 0 =  $-100,000

Cash flow each year from year 1 to 6 = $35,000

I = 14%

NPV =  $36,115.

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute  

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