Over the Rainbow Company has $300,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are as follows:

The working capital needed for Project B will be released for investment elsewhere at the end of seven years. Over the Rainbow Company uses a 20% discount rate.
Required:
Ignore income taxes. Which investment alternative (if either) would you recommend that the company accept? Show all computations using the net present value format. Prepare separate computations for each project.

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B Cost of equipment required.... Working capital investment required.. Annual cash inflows.... Salvage value of equipment in seven years. Life of the project..... $300,000 $300,000 ..... $ 80,000 $ 20,000 7 years $ 60,000 7 years %24