Perit Industries has $100,000 to invest. The company is trying to decide between two alternative uses of the funds. The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries’ discount rate is 14%. (Ignore income taxes.) The alternatives are:
Project A Project B
Cost of equipment required
$100,000 $0
Working capital investment required
$0 $100,000
Annual cash inflows
$21,000 $15,750
Salvage value of equipment in six years
$8,000 $0
Life of the project
6 years 6 years
Required:
(a)Calculate net present value for each project. (Negative amount should be indicated by a minus sign. Round your answer to the nearest dollar amount. Omit the “$” sign in your response.)
Net present value
Project A
$
Project B
$