Ch Perit Industries has 175000 to invest The company is tryi

Ch Perit Industries has $175,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Project A Project B $175, 000 0 $175,000 44, 000 Working capital investment required Annual cash inflows s 27,000 s 8, 800 Salvage value of equipment in six years Life of the project 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%. Click here to view Exhibit 138-1 and Exhibit 138-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you recommend that the company accept?

Solution

1) Net present value of project A = (27000*3.784+8800*0.432)-175000 = -69030

2) Net present value of project B = (44000*3.784+175000*.432)-175000 = 67096

3) Project B should be recommended