Lambert Manufacturing has $100,000 to invest in either Project A or Project B. The following data are available on these projects (Ignore income taxes.): Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.Both projects will have a useful life of 6 years and the total cost approach to net present value analysis. 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 net present value of Project A is:

Question

Lambert Manufacturing has $100,000 to invest in either Project A or Project B. The following data are available on these projects (Ignore income taxes.):  Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.Both projects will have a useful life of 6 years and the total cost approach to net present value analysis. 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 net present value of Project A is:

Quizplus · Accepted Answer

To calculate the net present value (NPV) for each project using the total cost approach, we need to find the initial investment, annual cash inflows, salvage value, and working capital requirements for each project.

For Project A:
Initial Investment = $100,000
Annual Cash Inflows = $26,000 per year (from Exhibit 14B-1, row 6, column 4)
Salvage Value = $0
Working Capital = $0
Discount Factor = 4.917 (from Exhibit 14B-2, 6 years, 14%)
NPV = -$11,168.68

For Project B:
Initial Investment = $100,000
Annual Cash Inflows = $18,000 per year (from Exhibit 14B-1, row 10, column 4)
Salvage Value = $30,000 (from Exhibit 14B-1, row 11, column 2)
Working Capital = $20,000 (from Exhibit 14B-1, row 11, column 3)
Discount Factor = 4.917 (from Exhibit 14B-2, 6 years, 14%)
NPV = $60,119.89

Therefore, the net present value of Project B is $60,120, which is the best choice for Lambert Manufacturing to invest in.

Lambert Manufacturing Has $100,000 to Invest in Either Project a or Project