Question
Spartech Industries has $100,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Project
Spartech Industries has $100,000 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 $100,000 $0
Working Capital Investment Required $0 $100,000
Annual cash Inflows $21,000 $18,000
Salvage Value of Equipment in 5 years $6,000 $8,000
Life of the Project 5 Years 5 Years
The working capital needed for Project B will be released at the end of 5 years for investment elsewhere. Spartech Industries discount rate is 12%.
Which investment alternative (if either) would you recommend that the company accept?
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Financial accounting
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel
IFRS Edition
9781119153726, 978-1118285909
