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Question 6 15 Marks PG has R100,000 to invest. The company is trying to decide between two...

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Finance

Question 6 15 Marks

PG has R100,000 to invest. The company is trying to decidebetween two alternative use of funds. The alternatives are:

Project A Project B
Cost of equipment required   R100,000 R0
Working capital investment required R0 R100,000
Annual cash inflow R21,000 R16,000
Salvage value of equipment in six years R8,000 R0
Life of the project 6 years 6 years

The working capital needed for project B will be released at theend of six years for investment
elsewhere. PG’s discount is 14%.

Required:
Which investment alternative (if either) would you recommend thatthe company accept? Show all
calculations using the net present value method. Prepare separatecalculations for each project.

Answer & Explanation Solved by verified expert
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here in the excel sheet we    See Answer
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Question 6 15 MarksPG has R100,000 to invest. The company is trying to decidebetween two alternative use of funds. The alternatives are:Project A Project BCost of equipment required   R100,000 R0Working capital investment required R0 R100,000Annual cash inflow R21,000 R16,000Salvage value of equipment in six years R8,000 R0Life of the project 6 years 6 yearsThe working capital needed for project B will be released at theend of six years for investmentelsewhere. PG’s discount is 14%.Required:Which investment alternative (if either) would you recommend thatthe company accept? Show allcalculations using the net present value method. Prepare separatecalculations for each project.

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