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Perit Industries has $120,000 to invest. The company is trying to decide between two alternative...

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Accounting

Perit Industries has $120,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:

Project A Project B
Cost of equipment required $ 120,000 $ 0
Working capital investment required $ 0 $ 120,000
Annual cash inflows $ 21,000 $ 30,000
Salvage value of equipment in six years $ 8,200 $ 0
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. Perit Industries discount rate is 15%.

Click here to view Exhibit 14B-1 and Exhibit 14B-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?

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