Perit Industries has $200,000 to invest. The company is trying to decide between

Question

Perit Industries has $200,000 to invest. The company is trying to decide between two altemative uses of the funds. The alternatives are Project A ProjectB $0 $0 $200,000 $29,000$51,000 $0 6 years $200,000 Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project $9,000 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Pert Industries' discount rate is 14% Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. Required: a. Calculate net present value for each project. Net present value

Explanation / Answer

Project A:

Net present value= Present value of cash inflow-Present value of cash outflow

                         = (29000*3.88867+9000*0.45559)-200000

Net Present value = (83128)

Project B :

Net Present value = Present value of cash inflow-Present value of cash outflow

                          = (51000*3.88867+200000*0.45559)-200000

Net present value = 89440

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