Question
Perit industries has $100,000. The company is trying to decide between two alternatives uses of the fund. The alternatives are: project A project B Cost
Perit industries has $100,000. The company is trying to decide between two alternatives uses of the fund. The alternatives are:
| project A | project B | |
| Cost of equipment required | $100,000 | $0 |
| working capital investment required | $0 | $100,000 |
| annual cash inflows | $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 6 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 for project B
3. which investment alternative (if either) would you recommend that the company accept?
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Advanced Accounting
Authors: Floyd A. Beams, Joseph H. Anthony, Bruce Bettinghaus, Kenneth Smith
11th Edition
978-0132568968, 9780132568968
