$$\text { Reference: } 10 - 05$$ The Sawyer Company Has $80,000 to Invest and Is Considering

$$\text { Reference: } 10 - 05$$ The Sawyer Company has $80,000 to invest and is considering two different projects, X and Y. The following data are available on the projects: $$\begin{array} { | l | l | l | } \hline & \text { Project } X & \text { Project } Y \\\hline \text { Cost of equipment needed now } & \$ 80,000 & - \\\hline \text { Working capital requirement } & - & \$ 80,000 \\\hline \text { Annual cash operating inflows } & \$ 23,000 & \$ 18,000 \\\hline \text { Salvage value in 5 years } & \$ 6,000 & - \\\hline\end{array}$$ Both projects will have a useful life of 5 years; at the end of 5 years, the working capital will be released for use elsewhere. Sawyer's discount rate is 12%.
-Boston Company is contemplating the purchase of a new machine on which the following information has been gathered: $$\begin{array} { | l | l | } \hline \text { Cost of the machine } & \$ 38,900 \\\hline \text { Annual cash inflows expected } & \$ 10,000 \\\hline \text { Salvage value } & \$ 5,000 \\\hline \text { Life of the machine } & 6 \text { years } \\\hline\end{array}$$ The company's discount rate is 16%, and the machine will be depreciated using the straight-line method. Given these data, the machine has a net present value of:

A) $26,100.
B) $0.
C) ($23,900) .
D) ($26,100) .

Correct Answer:

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