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Perrot Industries has $370,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives follow: Project A B
- Perrot Industries has $370,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives follow:
| Project | ||||||
| A | B | |||||
| Cost of equipment required | $ | 325,000 | ||||
| Working capital investment required | $ | 325,000 | ||||
| Annual cash inflows | 72,450 | 61,900 | ||||
| Salvage value of equipment in six years | 24,200 | |||||
| Life of the project | 6years | 6years | ||||
The working capital needed for project B will be released at the end of six years for investment elsewhere. Perrot Industries' discount rate is 10%.
- Determine the profitability index of Project A and B.5pts
- Which investment alternative (if either) would you recommend that the company accept? Why?2pts
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Strategic Management and Competitive Advantage Concepts and Cases
Authors: Jay B. Barney, William Hesterly
5th edition
133129306, 0133127400, 9780133129304, 978-0133127409
