Lambert Manufacturing has $60,000 to invest in either Project A or Project B. The following data are available on these projects:

Both projects have a useful life of six years. At the end of six years, the working capital investment will be released for use elsewhere. Lambert's discount rate is 14%. (Ignore income taxes in this problem.)
-The net present value of Project B is closest to which of the following?

Question

Lambert Manufacturing has $60,000 to invest in either Project A or Project B. The following data are available on these projects:

Both projects have a useful life of six years. At the end of six years, the working capital investment will be released for use elsewhere. Lambert's discount rate is 14%. (Ignore income taxes in this problem.)
-The net present value of Project B is closest to which of the following?

Quizplus · Accepted Answer

To calculate the net present value (NPV) for both projects, we need to calculate the present value of each cash flow using the discount rate of 14%.

For Project A: 
NPV = (-$60,000) + ($18,000 / (1.14)^1) + ($24,000 / (1.14)^2) + ($31,500 / (1.14)^3) + ($38,850 / (1.14)^4) + ($46,620 / (1.14)^5) + ($56,620 / (1.14)^6) 
NPV = -$16,811.91

For Project B: 
NPV = (-$60,000) + ($0 / (1.14)^1) + ($0 / (1.14)^2) + ($0 / (1.14)^3) + ($0 / (1.14)^4) + ($0 / (1.14)^5) + ($216,616.63 / (1.14)^6) 
NPV = $77,805.46

Therefore, the best choice for Lambert Manufacturing is to invest in Project B, which will have a net present value of $77,805.46.

Lambert Manufacturing Has $60,000 to Invest in Either Project a or Project