Question

Lambert Manufacturing has $120,000 to invest in either Project A or Project B. The following data are available on these projects (Ignore income taxes.): Cost of equipment needed now Working capital investment needed now Annual net operating cash inflows Salvage value of equipment in 6 years Project A Project B $120,000 $70,000 $50,000 $ 50,000 $45,000 $ 15,000 Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. Both projects have a useful life of 6 years. At the end of 6 years, the working capital investment will be released for use elsewhere. Lambert's discount rate is 14%. The net present value of Project B is closest to: Multiple Choice $77,805 O $127,805 $127,805 O $55.005 $55,005

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer The correct answer is $ 77805 Net Present Value of Project B =Present value of cash inflows - Present value of cash outflows = ((45000*((1-(1.14)^-6)/.14))+(50000/(1.14)^6))-(70000+50000) = ((45000*3.889)+(50000*.456))-120000 = $77805 For any help please comment in the comment box Thank You