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 $15,750
Salvage value of equipment in six years $8,000 $0
Life of the project 6 years 6 years
The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 14%. (Ignore income taxes.)
Solve this problem using your financial calculator or Excel, NOT the tables in the chapter.
Required:
(a) Calculate net present value for each project. (Negative amount should be indicated by a minus sign. Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)
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