Multiple Choice 77805 127805 55005 105005 Lambert Manufactur

Multiple Choice

$77,805

$127,805

$55,005

$105,005

Lambert Manufacturing has $120,000 to invest in either Project A or Project B. The following data are available on these projects (lgnore income taxes.): Project A Project B $120,000 $70,000 Cost of equipment needed now Working capital investment needed now Annual net operating cash inflows50,000 $45,000 Salvage value of equipment in 6 years $50,000 ? 15,000 Click here to view Exhibit 13B-1 and Exhibit 138-2, 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:

Solution

Project B: A B A*B Year Cash Inflow Cash Inflow Discount Factor @ 14% Present Value Beginning -70000-50000 -120000 1.00 -120000 1 45000 45000 0.88 39465 2 45000 45000 0.77 34605 3 45000 45000 0.68 30375 4 45000 45000 0.59 26640 5 45000 45000 0.52 23355 6 45000+50000 95000 0.46 43320 Net Present Value 77760 The NPV will be closest to 77805/- The above difference is due to rounding off of Discount Factor