Perit Industries has $110,000 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 $110,eee $ Working capital investment required $ $110,000 Annual cash inflows $ 20,000 $ 28,000 Salvage value of equipment in six years $ 8,100 $ Life of the project 6 years 6 years The working capital needed for project will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 15% Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables Required: 1. Compute the net present value of Project A. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (If either) would you recommend that the company accept? 1. Net present value project A 2. Net present value project B Which investment alternative (if either) would you recommend that the company accept? Derrick Iverson is a divisional manager for Holston Company His annual pay raises are largely determined by his division's return on Investment (ROI), which has been above 25% each of the last three years. Derrick is considering a capital budgeting project that would require a $5,150,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 17%. The project would provide net operating income each year for five years as follows: $4,300,000 1,900,000 2,400,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income $ 765, eee 1,030, 880 1,795,000 $ 605,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using tables Required: 1. Compute the project's net present value. 2. Compute the project's simple rate of return. 3a. Would the company want Derrick to pursue this investment opportunity? 3b. Would Derrick be inclined to pursue this investment opportunity? Required information [The following information applies to the questions displayed below] Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $425.000, have a fifteen-year useful life, and have a total salvage value of $42.500. The company estimates that annual revenues and expenses associated with the games would be as follows: $220,000 Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $70,000 25,000 25,500 40,000 160,500 $ 59,500 Required: 1a. Compute the payback period associated with the new electronic games 1b. Assume that Nick's Novelties, Inc., will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games? Required information (The following information applies to the questions displayed below] Nick's Novelties, Inc. is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $425,000, have a fifteen-year useful life, and have a total salvage value of $42.500. The company estimates that annual revenues and expenses associated with the games would be as follows: $220,000 Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $70, eee 25,000 25,500 40,000 160,500 $ 59,500 2a. Compute the simple rate of return promised by the games 2b. If the company requires a simple rate of return of at least 11%, will the games be purchased? Complete this question by entering your answers in the tabs below
