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%.
-Suppose an investment has cash inflows of R dollars at the end of each year for two years. The present value of these cash inflows using a 12% discount rate will be:

A) sometimes greater than under a 10% discount rate and sometimes less; it depends on R.
B) less than under a 10% discount rate.
C) equal to that under a 10% discount rate.
D) greater than under a 10% discount rate.

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