50.1K

Verified Solution

Link Copied!

Wriston Company has $220,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are as follows:

	A	B
Cost of equipment required	$220,000	$0
Working capital investment required	$0	$220,000
Annual cash inflows	$95,000	$85,000
Salvage value of equipment in four years	$22,000	$0
Life of the project	4 years	4 years

The working capital needed for project B will be released for investment elsewhere at the end of four years. Wriston Company uses a 18% discount rate. (Ignore income taxes.)

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:

a.

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, intermediate and final answers to the nearest dollar amount.Omit the "$" sign in your response.)

	Net Present Value
Project A	$
Project B	$

b.	Which investment alternative (if either) would you recommend that the company accept?
	Project B Project A Yancey Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Project Investment Required Net Present Value Life of the Project (years) Internal Rate of Return A $830,000 $240,960 7 18% B $660,000 $225,820 12 17% C $530,000 $175,860 7 19% D $730,000 $165,320 3 22% The net present values above have been computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, which to accept second, and so forth. The companys investment funds are limited. Required: 1. Compute the project profitability index for each project. (Round your answers to 2 decimal places.) Project Profitability Index A B C D 2. In order of preference, rank the four projects in terms of net present value, project profitability index and internal rate of return. Net Present Value Project Profitability Index Internal Rate of Return First preference (Click to select)ABCD (Click to select)BCAD (Click to select)DCAB Second preference (Click to select)ABCD (Click to select)BCAD (Click to select)DCAB Third preference (Click to select)ABCD (Click to select)BCAD (Click to select)DCAB Fourth preference (Click to select)ABCD (Click to select)BCAD (Click to select)DCAB

Answer & Explanation Solved by verified expert

See Answer