E10–3 Time allowed: 15 minutes Perot Industries has £100,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:

The working capital needed for project B will be released at the end of six years for investment elsewhere. Perot Industries’ discount rate is 14%.
Which investment alternative (if either) would you recommend that the company accept? Show all computations using the net present value format.
Prepare a separate computation for each project.

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Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project A 100,000 21,000 Project B 100,000 16,000 8,000 6 years 6 years