Perit Industries has $130,000 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	$130,000	$0
Working capital investment required	$0	$130,000
Annual cash inflows	$21,000	$65,000
Salvage value of equipment in six years	$8,100	$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 17%.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:

a.

Calculate net present value for each project. (Any cash outflows should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s).)

	Now	1	2	3	4	5	6
Project A:
Purchase of equipment
Annual cash inflows
Salvage value
Total cash flows
Discount factor (17%)
Present value
Net present value
Project B:
Working capital invested
Annual cash inflows
Working capital released
Total cash flows
Discount factor (14%)
Present value
Net present value