11.

Perit Industries has $210,000 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	$	210,000			$	0
Working capital investment required	$	0			$	210,000
Annual cash inflows	$	30,000			$	52,000
Salvage value of equipment in six years	$	9,100			$	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 15%.

Click here to view Exhibit 8B-1 and Exhibit 8B-2, to determine the appropriate discount factor(s) using tables.

Required:

a. Calculate net present value for each project

Project A	Project B
Net present value

b. Which investment alternative (if either) would you recommend that the company accept?

	Project B
	Project A