Sharp Company has $35,000 to invest. The company is trying todecide between two alternative uses of the funds as follows:
Invest in
Project A Invest in
Project B Investmentrequired $ 35,000 $ 35,000 Annual cashinflows $ 6,500 $ 0 Single cash inflowat the end of 10 years $ 39,000 Life of theproject 10years 10years
Sharp Company uses a 8% discountrate. (Ignore income taxes.)
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determinethe appropriate discount factor(s) using tables.
Required:
a. Determine the net present value. (Negative amountsshould be indicated by a minus sign. Round discount factor(s) to 3decimal places, other intermediate calculations and final answersto the nearest whole dollar.)
Net PresentValue Project A $ Project B $
b. Which investment would yourecommend that the company accept? Project A Project B
Sharp Company has $35,000 to invest. The company is trying todecide between two alternative uses of the funds as follows: |
| Invest in Project A | Invest in Project B | |||
| Investmentrequired | $ | 35,000 | $ | 35,000 |
| Annual cashinflows | $ | 6,500 | $ | 0 |
| Single cash inflowat the end of 10 years | $ | 39,000 | ||
| Life of theproject | 10years | 10years | ||
| Sharp Company uses a 8% discountrate. (Ignore income taxes.) |
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determinethe appropriate discount factor(s) using tables. |
| Required: |
| a. | Determine the net present value. (Negative amountsshould be indicated by a minus sign. Round discount factor(s) to 3decimal places, other intermediate calculations and final answersto the nearest whole dollar.) |
| Net PresentValue | |
| Project A | $ |
| Project B | $ |
| b. | Which investment would yourecommend that the company accept? | ||||
|
Related questions
Sharp Company has $14,000 to invest. The company is trying todecide between two alternative uses of the funds as follows: |
| Invest in Project A | Invest in Project B | |||
| Investmentrequired | $ | 14,000 | $ | 14,000 |
| Annual cashinflows | $ | 3,500 | $ | 0 |
| Single cash inflowat the end of 11 years | $ | 43,000 | ||
| Life of theproject | 11years | 11years | ||
| Sharp Company uses a 18%discount rate. (Ignore income taxes.) |
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determinethe appropriate discount factor(s) using tables. |
| Required: |
| a. | Determine the net present value. (Negative amountsshould be indicated by a minus sign. Round discount factor(s) to 3decimal places, other intermediate calculations and final answersto the nearest whole dollar.) |
| Net PresentValue | |
| Project A | $ |
| Project B | $ |
| b. | Which investment would yourecommend that the company accept? | ||||
|
Perit Industries has $170,000 to invest. The company is tryingto decide between two alternative uses of the funds. Thealternatives are: |
| Project A | Project B | |
| Cost of equipmentrequired | $170,000 | $0 |
| Working capitalinvestment required | $0 | $170,000 |
| Annual cashinflows | $26,000 | $43,000 |
| Salvage value ofequipment in six years | $8,700 | $0 |
| Life of theproject | 6 years | 6 years |
The working capital needed for project B will be released at theend of six years for investment |
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determinethe appropriate discount factor(s) using tables. |
| Required: |
| a. | Calculate net present value for each project. |
| b. | Which investment alternative (ifeither) would you recommend that the company accept? | ||||
|
