$$\text { Reference: } 10 - 05$$ The Sawyer Company Has $80,000 to Invest and Is Considering

question 61

Multiple Choice

$$\text { Reference: } 10 - 05$$ The Sawyer Company has $80,000 to invest and is considering two different projects, X and Y. The following data are available on the projects: $$\begin{array} { | l | l | l | } \hline & \text { Project } X & \text { Project } Y \\\hline \text { Cost of equipment needed now } & \$ 80,000 & - \\\hline \text { Working capital requirement } & - & \$ 80,000 \\\hline \text { Annual cash operating inflows } & \$ 23,000 & \$ 18,000 \\\hline \text { Salvage value in 5 years } & \$ 6,000 & - \\\hline\end{array}$$ Both projects will have a useful life of 5 years; at the end of 5 years, the working capital will be released for use elsewhere. Sawyer's discount rate is 12%.
-The net present value of project Y is closest to:

• A)$15,110.
• B)$11,708.
• C)($11,708).
• D)$30,250.

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Definitions:

Unrealized Gain

The increase in the value of an investment that has not been sold yet, and thus, the gain is not yet realized as actual income.

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