Petit Industries has $155,000 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 | $155,900 | $0 |
| Working capital investment required | $0 | $155,000 |
| Annual cash inflows | $20,000 | $55,000 |
| Salvage value of equipment in six years | $9,400 | $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. Petit Industries’ discount rate is 14%.
Required:
1. Compute the net present value of Project A.
2. Compute the net present value of Project B.
3. Which investment alternative (if either) would you recommend that the company accept?
Consider the following information and solve for the unknown interest rate.
| Present Value | Years | Future Value |
| $29,000 | 18 | $107,503 |
John Deere sells a tractor for $200,000 which is due in 4 years. What is the present value of this onetime payment if the annual interest rate is 8%?
A. $147,006.
B. $272,098.
C. $200,000.
D. $50,000.
