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Project A Project B Cost of equipment required Working capital investment required Annual cash inflows..... Salvage value of equipment in six years Life of the project ..... $100,000 $0 $0 $100,000 $16,000 $21,000 $8,000 6 years $0 6 years

Project A Project B Cost of equipment required Working capital investment required Annual cash inflows..... Salvage value of equipment in six years Life of the project ..... $100,000 $0 $0 $100,000 $16,000 $21,000 $8,000 6 years $0 6 years

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:

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:

1. Compute the net present value of Project A.

2. Compute the net present value of Project B.

3. Which investment alternative (if either) would you recommend that the company accept?

Project A Project B Cost of equipment required Working capital investment required Annual cash inflows..... Salvage value of equipment in six years Life of the project ..... $100,000 $0 $0 $100,000 $16,000 $21,000 $8,000 6 years $0 6 years
Transcribed Image Text:Project A Project B Cost of equipment required Working capital investment required Annual cash inflows..... Salvage value of equipment in six years Life of the project ..... $100,000 $0 $0 $100,000 $16,000 $21,000 $8,000 6 years $0 6 years
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