Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:

Project AProject BCost of equipment required$ 155,000 $ 0 Working capital investment required$ 0 $ 155,000 Annual cash inflows$ 20,000 $ 55,000 Salvage value of equipment in six years$ 9,400 $ 0 Life of the project6years6years

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%.

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.

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?

EXHIBIT 12B-2 Present Value of an Annuity of $1 in Arrears; 1/r(1(1/(1+r)n)) EXHIBIT 12B-1 Present Value of $1;(1+r)n1