Perit Industries has $125,000 to invest. The company is trying to decide between two alternative...
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Perit Industries has $125,000 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 $125,000 $0 Working capital investment required $0 $125,000 Annual cash inflows $20,000 $64,000 Salvage value of equipment in six years $8,000 $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 17%. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required a. Calculate net present value for each project. b. Which investment alternative (if either) would you recommend that the company accept? Project B Project A
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