Wriston Company has $320,000 to invest. The company is trying to decide between
ID: 2381570 • Letter: W
Question
Wriston Company has $320,000 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 18% 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 $320,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are as follows:
Wriston Company has $320,000 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 18% discount rate. (Ignore income taxes.) 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.)Explanation / Answer
net present value of project B
NPV = 82000/1.18 + 82000/1.18^2 +........+ 82000/1.18^10 + 320000/1.18^10 = $429655.705 - $320000 = $109655.705
net present value of project A
NPV = 89000/1.18 + 89000/1.18^2 +........+ 89000/1.18^10 + 36000/1.18^10 = $406852.001 - $320000 = $86852.001
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