Question
After much deliberation, the management of a company has identified that their capital expenditure budget still has a free amount of $100,000. The company is
After much deliberation, the management of a company has identified that their capital expenditure budget still has a free amount of $100,000. The company is now trying to determine whether to use the remaining funds to fund Project A or Project B.
| Project A | Project B | |
|---|---|---|
| Cost of equipment required | $100,000 | $0 |
| Working capital investment required | $0 | $100,000 |
| Annual cash inflow | $21,000 | $16,000 |
| Salvage value of equipment in 6 years | $8,000 | $0 |
| Life of the project | 6 years | 6 years |
The working capital needed for project B will be released at the end of the 6th year. The discount rate is 14%.
PV factor for 14%:
| PV of $1 single payment, now | 1.0000 |
|---|---|
| PV of $1 ordinary annuity, 6 years | 3.889 |
| PV of $1 single payment, 6 years | 0.456 |
Compute the present value of the annual cash inflow of the Project A. Roud to nearest dollar value.
Compute the present value of salvage value. Round your answers to the nearest dollar.
Compute the present value of Project A. Round answers to the nearest dollar.
Compute the present value of the annual cash inflow of Project B. Round answers to the nearest dollar.
Compute the present value of the working capital that will be released after the 6th year in Project B.
Compute the net present value of Project B. Round to the nearest dollar.
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Financial And Accounting Principles In Islamic Finance
Authors: Samir Alamad
1st Edition
3030162982, 9783030162986
