Exercise 11-6 Comparison of Projects Using Net Present Value [LO1]

Sharp Company has $31,000 to invest. The company is trying to decide between two alternative uses of the funds as follows:

	Invest in Project A		Invest in Project B
Investment required	$	31,000	$	31,000
Annual cash inflows	$	5,000	$	0
Single cash inflow at the end of 11 years			$	46,000
Life of the project	11 years		11 years

Sharp Company uses a 8% discount rate. (Ignore income taxes.)

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Required:

a.	Determine the net present value. (Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answers to the nearest whole dollar.)

	Net Present Value
Project A	$
Project B	$

b.

Which investment would you recommend that the company accept?

	Project A
	Project B

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