Which investment alternative would you recommend

Reference no: EM133633023

Question

A small-scale construction company has R100,000 to invest. It has an option of investing in either project A or project B. The information on the two projects is:

PROJECT A PROJECT B REMARKS

R100,000 R0 Cost of equipment required

R0 R100,000 Working capital investment required

R21,000 R16,000 Annual cash inflow

R8,000 R0 Salvage value of equipment in six years

6 Years 6 Years Life of project

The working capital needed for project B will be released at the end of six years for investment elsewhere. The company uses a 14 percent cost of capital to evaluate these investments.

Required:

Which investment alternative would you recommend that the company accept? Show all calculations using the net present value method. Prepare separate calculations for each project.

Reference no: EM133633023

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