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
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