Exercise 13-7 Net Present Value Analysis of Two Alternatives [LO13-2]

Perit 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	$155,000	$0
Working capital investment required	$0	$155,000
Annual cash inflows	$25,000	$40,000
Salvage value of equipment in six years	$8,600	$0
Life of the project	6 years	9 years

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%.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:

a.	Calculate net present value for each project. (Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)