Question
Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Project
Perit Industries has $155,000 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 | $ | 155,000 | $ | 0 | |||
| Working capital investment required | $ | 0 | $ | 155,000 | |||
| Annual cash inflows | $ | 25,000 | $ | 57,000 | |||
| Salvage value of equipment in six years | $ | 9,600 | $ | 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 15%.
Required:
a. Calculate net present value for each project.
b. Which investment alternative (if either) would you recommend that the company accept?
| - | Project A |
| - | Project B |
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An Introduction To Modern Financial Reporting Theory
Authors: Brian A Rutherford
1st Edition
9780761966074
