Wriston Company has $310,000 to invest. The company is trying to decide between

Question

Wriston Company has $310,000 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 four years. Wriston Company uses a 14% 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. Required: 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 v/hole dollar.) Which investment alternative (if either) would you recommend that the company accept? Project A Project B

Explanation / Answer

Year Cash Flows Discount @14% Present value of cash flows 0 -310000 1 -310000 1 68000 0.877192982 59649.12281 2 68000 0.769467528 52323.79194 3 68000 0.674971516 45898.0631 4 68000 0.592080277 40261.45886 4 36000 0.592080277 21314.88999 Net Present Vlaue -90552.6733 Year Cash Flows Discount @14% Present value of cash flows 0 -310000 1 -310000 1 53000 0.877192982 46491.22807 2 53000 0.769467528 40781.77901 3 53000 0.674971516 35773.49036 4 53000 0.592080277 31380.2547 4 310000 0.592080277 183544.886 Net Present Vlaue 27971.63812 Conclusion: Since the NPV of the project B is positive and this the project B is selected.

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