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.): Project A Project B Cost of equipment needed now $ 100,000 $ 60,000 Working capital investment needed now $ 0 $ 40,000 Annual cash operating inflows $ 40,000 $ 35,000 Salvage value of equipment in 6 years $ 10,000 $ 0 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%.
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.): Project A Project B Cost of equipment needed now $ 100,000 $ 60,000 Working capital investment needed now $ 0 $ 40,000 Annual cash operating inflows $ 40,000 $ 35,000 Salvage value of equipment in 6 years $ 10,000 $ 0 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%.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
Problem 2P
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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.):
| Project A | Project B | |
|---|---|---|
| Cost of equipment needed now | $ 100,000 | $ 60,000 |
| $ 0 | $ 40,000 | |
| Annual |
$ 40,000 | $ 35,000 |
| Salvage value of equipment in 6 years | $ 10,000 | $ 0 |
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
The net present value of Project A is:
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