Perit Industries has $100,000 to invest. The company is trying to decide between two alternative uses ofthe funds. The alternatives are:Project A Project BCost of equipment required ....................... $100,000 $0Working capital investment required ......... $0 $100,000Annual cash inflows .................................. $21,000 $16,000Salvage value of equipment in six years ... $8,000 $0Life of the project ...................................... 6 years 6 yearsThe working capital needed for project B will be released at the end of six years for investment elsewhere.Perit Industries’ discount rate is 14%.Required:(Ignore income taxes.) Which investment alternative (if either) would you recommend that the companyaccept? Show all computations using the net present value format. Prepare separate computations for eachproject.
Perit 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
Annual
Salvage value of equipment in six years ... $8,000 $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 14%.
Required:
(Ignore income taxes.) Which investment alternative (if either) would you recommend that the company
accept? Show all computations using the
project.
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