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Prepare separate computations for each project

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Net Present Value Analysis of two Alternatives

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

Working Capital Investment Required                           $0                         $100,000

Annual Cash Inflows                                                 $21,000                     $16,000

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 6 years for investment elsewhere. Perit Industries' discount rate is 14%.

Required:

Question 1: Which investment alternative (if either) would you recommend the company accept? Show all computations using the net present value format. Prepare separate computations for each project.

Reference no: EM132562260

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