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

question 58

Multiple Choice

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.

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Recognize the differences between unilateral and bilateral contracts.

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Definitions:

Marginal Cost

The increase in cost that arises from producing one additional unit of a good or service, often considered for decision-making in production and pricing strategies.

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