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Compute the net present value of Project A

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Reference no: EM132917259

Question - Perit Industries has $125,000 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 $125,000 $0

Working capital investment required $0 $125,000

Annual cash inflows $23,000 $71,000

Salvage value of equipment in six years $8,900 $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 15%.

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?

Reference no: EM132917259

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