Exercise 1 The Sunshine company is considering two projects, project A and project B. Project A requires the purchase of an equipment but no working capital investment whereas project B requires a working capital investment but no equipment. The relevant information for net present value analysis is given below: Cost of equipment Working capital needed Annual cash inflows Salvage value of equipment Project life Project A Project B $600,000 $160,000 $ 40,000 8 years $600,000 $120,000 8 years The working capital required for project B will be released at the end of project life. Sunshine company uses an 18% discount rate. Select the best investment using net present value (NPV) method. (Ignore income tax).
Exercise 1 The Sunshine company is considering two projects, project A and project B. Project A requires the purchase of an equipment but no working capital investment whereas project B requires a working capital investment but no equipment. The relevant information for net present value analysis is given below: Cost of equipment Working capital needed Annual cash inflows Salvage value of equipment Project life Project A Project B $600,000 $160,000 $ 40,000 8 years $600,000 $120,000 8 years The working capital required for project B will be released at the end of project life. Sunshine company uses an 18% discount rate. Select the best investment using net present value (NPV) method. (Ignore income tax).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Exercise 1
The Sunshine company is considering two projects, project A and project B. Project A requires the
purchase of an equipment but no working capital investment whereas project B requires a working |
capital investment but no equipment. The relevant information for net present value analysis is given
below:
Cost of equipment
Working capital needed
Annual cash inflows
Salvage value of equipment
Project life
Project A Project B
$600,000
$160,000
$ 40,000
$600,000
$120,000
8 years
8 years
The working capital required for project B will be released at the end of project life. Sunshine company
uses an 18% discount rate.
Select the best investment using net present value (NPV) method. (Ignore income tax).
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