MapleTree Industries has $ 265,000 to invest. The company is trying to decide between two alternative uses
Question:
MapleTree Industries has $ 265,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives follows
Project A Project B
Cost of equipment required $265,000
Working capital investment required $265,000
Annual Cash inflow $55,650 $42,400
Residue value of equipment in 8 years $21,200
Life of the project 8 years 8 years
The working capital needed for project B will be released at the end of eight years for investment elsewhere. Canada Fair Market interest rate is 13%
Required:
Which Investment option would you recommend the company to accept? Please show separate calculations and formulas for each project using the NPV method.
( Please show me in your answers which of the formula you use for your calculation and no financial calculator or Excel calculation sheet to be used)