Question
Perit Industries has $100,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Project
Perit Industries has $100,000 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 $100,000 $0
Working Capital Investment Required $0 $100,000
Annual Cash Inflows $21,000 $16,000
Salvage Value of equipment in six 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:
Which investment alternative (if either) would you recommend the company accept? Show all computations using the net present value format. I need to prepare separate computations for each project.
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