Lambert Manufacturing has $100,000 to invest in either Project A or Project B. The following data are available on these projects:
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Project A
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Project B
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Cost of equipment needed now
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$100,000
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$60,000
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Working capital investment needed now
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$40,000
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Annual cash operating inflows
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$40,000
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$35,000
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Salvage value of equipment in 6 years
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$10,000
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Both projects will 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 required rate of return is 14%. The company uses the total cost approach to evaluating alternatives.
1. The net present value of Project A is:
A) $51,000
B) $60,120
C) $55,560
D) $94,450
2. The net present value of Project B is:
A) $90,355
B) $76,115
C) $36,115
D) $54,355