Question

Perit Industries has $100,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:

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

Answer 1

Answer:-a)- Net present value of each project:-

Project A = ($14683)

Project B = $6852

Explanation:-

Perit Inductries
Net Present Value
	Project A
Particulars		Present Value Factor @14%	Present value
	(a)	(b)	(c=a*b)
Net cash flow per year (For 6 years)	21000	3.889	81669
New Equipment (1st Year)	-100000	1	-100000
Salvage value (6th year)	8000	0.456	3648
Net Present Value			-14683
Perit Industries
Net Present Value
	Project B
Particulars	Cash Flows	Present Value Factor @14%	Present value
	(a)	(b)	(c=a*b)
Net cash flow per year (For 6 years)	15750	3.889	61252
Working capital investment (1st Year)	-100000	1	-100000
Working capital released (6th year)	100000	0.456	45600
Net Present Value			6852

b)-The company should accept Project B due to positive net positive value.