Wriston Company has $270,000 to invest. The company is trying to decide between
ID: 2479507 • Letter: W
Question
Wriston Company has $270,000 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 six years. Wriston Company uses a 17% 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 $270,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are as follows:
Explanation / Answer
A Project A Cash Flow Discount rate NPV Year 0 -270,000 17% -270000 Year 1 90,000 17% 76,923 Year 2 90,000 17% 65,746 Year 3 90,000 17% 56,193 Year 4 90,000 17% 48,029 Year 5 90,000 17% 41,050 Year 6 122,000 17% 47,560 Total NPV 65,501.463 Project B Cash Flow Discount rate NPV Year 0 -270,000 17% -270000 Year 1 64,000 17% 54,701 Year 2 64,000 17% 46,753 Year 3 64,000 17% 39,960 Year 4 64,000 17% 34,154 Year 5 64,000 17% 29,191 Year 6 64,000 17% 24,950 Total NPV -40,292.176 B Option A is recommend
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