Showing all computations using the net present value approach.
Serv U Best, a company that supplies temporary workers for restaurants and other service industries, has $35,000 to invest. Management is trying to decide between two alternative uses for the funds as follows:
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Invest in Project X
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Invest in Project Y
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Investment required
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$35,000
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$35,000
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Annual cash infows
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$9,000
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Single cash inflow at the ed of 10 years
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$150,000
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Life of the project
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10 years
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10 years
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The company's discount rate is 18%.
Required:
Which alternative would you recommend that the company accept? Show all computations using the net present value approach. Prepare separate computations for each project.