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In: Finance
Question 6 15 Marks PG has R100,000 to invest. The company is trying to decide between...
Question 6 15 Marks
PG has R100,000 to invest. The company is trying to decide between 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 the
end of six years for investment
elsewhere. PG’s discount is 14%.
Required:
Which investment alternative (if either) would you recommend that
the company accept? Show all
calculations using the net present value method. Prepare separate
calculations for each project.
Solutions
Expert Solution
here in the excel sheet we see
the NPV of project A is negative and also less than project B so
project B should be selected because it has positive NPV
jeff jeffy answered 2 months agoRelated Solutions
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