Lambert Manufacturing Has $\$ 60,000$ To Invest in Either Project a or Project B

Lambert Manufacturing has $\$ 60,000$ to invest in either Project A or Project B. The following data are available on these projects:
$\begin{array}{|l|r|r|}\hline & \text { Project A } & \text { Project B } \\\hline \text { Cost of equipment needed now } & \$ 120,000 & \$ 70,000 \\\hline \text { Working capital investment needed now } & & \$ 50,000 \\\hline \text { Annual net operating cash inflows } & \$ 50,000 & \$ 45,000 \\\hline \text { Salvage value of equipment in six years } & \$ 15,000 & \\\hline\end{array}$
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.)
-Which of the following statements is(are) correct?
I.Project A is acceptable according to the net present value method.
II.Project A has an internal rate of return greater than 14%.

A) I only.
B) II only.
C) Both I and II.
D) Neither I nor II.

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free