Question - Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:
|
|
Project A
|
Project B
|
|
Cost of equipment required
|
$155,000
|
$0
|
|
Working capital investment required
|
$0
|
$155,000
|
|
Annual cash inflows
|
$20,000
|
$55,000
|
|
Salvage value of equipment in six years
|
$9,400
|
$0
|
|
Life of the project
|
6 years
|
6 years
|
The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 14%.
Required:
1. Compute the net present value of Project A.
2. Compute the net present value of Project B.
3. Which investment alternative (if either) would you recommend that the company accept?