Exercise 11-6 Comparison of Projects Using Net Present Value [LO1] Sharp Company

Question

Exercise 11-6 Comparison of Projects Using Net Present Value [LO1]

Sharp Company has $20,000 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.)

  
    

Sharp Company has $20,000 to invest. The company is trying to decide between two alternative uses of the funds as follows:

Comparison of Projects Using Net Present Value [LO1] Sharp Company has $20,000 to invest. The company is trying to decide between two alternative uses of the funds as follows: Determine the net present value.

Explanation / Answer

Compute the net present value . (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

Project A

Present value of the cash inflows of Project A = 3500*PVIFA(12%,16) -20000

Present value of the cash inflows of Project A = 3500*6.974 -20000 = 4409

Project B

Present value of the cash inflows of Project B = 48000*PVIF(12%,16) -20000

Present value of the cash inflows of Project B = 48000*0.163 -20000 = $ -12176

Answer:

Net Present Value Project A $ 4409 Project B
$ -12176

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