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Perit Industries has $120,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Product A
Perit Industries has $120,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Product A Product B Cost of equipment required $120,000 $0 Working capital investment required $0 $120,000 Annual cash inflows $26,000 $25,000 Salvage value of equipment in six years $9,700 $0 Life of the project 6 years 6 years The company's discount rate is 10%. The working capital needed for project B will be released at the end of six years for investment elsewhere. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Requirements: (Please DO NOT enter a $ sign when entering your answers. An example of a positive number is 1,000. An example of a negative number is -1,000.) 1. Calculate the net present value for Product A. 2. Calculate the net present value for Product B. 3. Which investment alternative (if either) would you recommend that the company accept?
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