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Question - Perit Industries has $110,000 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
$110,000
$0
Working capital investment required
Annual cash inflows
$20,000
$28,000
Salvage value of equipment in six years
$8,100
Life of the project
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?
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