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Perrot Industries has $360,000 to invest. The company is trying to decide between two alternative...

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Accounting

Perrot Industries has $360,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives follow:

Project
A B
Cost of equipment required $ 315,000
Working capital investment required $ 315,000
Annual cash inflows 71,000 56,400
Salvage value of equipment in six years 22,000
Life of the project 6 years 6 years

The working capital needed for project B will be released at the end of six years for investment elsewhere. Perrot Industries discount rate is 10%.

Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables.

Required:

1-a. Calculate net present value for each project. (Negative amount should be indicated with a minus sign. Round discount factor(s) to 3 decimal places. Round other intermediate calculations and final answers to the nearest whole number.)

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

multiple choice

  • Project A

  • Project B

Answer & Explanation Solved by verified expert
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