Q1) Serv U Best, a company which supplies temporary workers for restaurants and other service industries, has $35,000 to invest. Management is trying to decide between two alternative uses for funds as follows:
| |
Invest in Project X |
Invest in Project Y |
| Investment required |
$35,000 |
$35,000 |
| Annual cash infows |
$9,000 |
|
| Single cash inflow at the ed of 10 years |
|
$150,000 |
| Life of the project |
10 years |
10 years |
Company's discount rate is 18%.
Question:
Which alternative would you suggest that company accept? Illustrate all calculation using net present value approach. Create separate calculations for each project.