Perit Industries has $125,000 to invest. The company is trying to decide between two alternative uses of
Question:
Perit Industries has $125,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:
Project AProject BCost of equipment required$125,000$0Working capital investment required$0$125,000Annual cash inflows$23,000$71,000Salvage value of equipment in six years$8,900$0Life of the project6 years6 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 15%.
Required:
1. Compute the net present value of Project A.(Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.)
2. Compute the net present value of Project B.(Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.)
3. Which investment alternative (if either) would you recommend that the company accept?
(please give answers and explanation)