Haas Trucking Company founded in 1985 provides safe and dependable freight services. Haas has $130,000 to invest in one of the two projects listed below.
Project A Project B
Cost of equipment required $ 130,000 $ 0
Working capital investment required $ 0 $ 130,000
Annual cash inflows $ 22,000 $ 33,000
Salvage value of equipment in six years $ 8,300 $ 0
Life of the project 6 years 6 years
The working capital needed for project B will be released at the end of six years for investment elsewhere. The company's discount rate is 14%.
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Compute the net present value of Project A. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.)
2. Compute the net present value of Project B. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.)
3. Which investment alternative (if either) would you recommend that the company accept?