Reference: 10-09
Lambert Manufacturing Has $120,000 to Invest in Either

Reference: 10-09
Lambert Manufacturing has $120,000 to invest in either Project A or Project B. The following data are available on these projects: $$\begin{array} { | l | l | l | } \hline & \text { Project A } & \text { Project } B \\\hline \text { Cost of equipment needed now } & \$ 120,000 & \$ 70,000 \\\hline \text { Working capital investment needed now } & - & \$ 50,000 \\\hline \text { Annual net operating cash inflows } & \$ 50,000 & \$ 45,000 \\\hline \text { Salvage value of equipment in 6 years } & \$ 15,000 & - \\\hline\end{array}$$ Both projects 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 discount rate is 14%.
-The following data pertain to an investment proposal: $$\begin{array} { | l | l | } \hline \text { Cost of the investment } & \$ 20,000 \\\hline \text { Annual cost savings } & \$ 5,000 \\\hline \text { Estimated salvage value } & \$ 1,000 \\\hline \text { Life of the project } & 8 \text { years } \\\hline \text { Discount rate } & 16 \% \\\hline\end{array}$$ The net present value of the proposed investment is:

A) $2,025.
B) $6,064.
C) $2,154.
D) $1,720.

Correct Answer:

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