Question
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
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 | 6 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:
1. Compute the net present value of Project A. (Enter negative values 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 values 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?
Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternative are: points Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A Project B $ 155,000 $ 0 $ 0 $155,000 $ 25,000 $ 40,000 $ 8,600 $ 0 6 years 6 years eBook Print References The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discou rate is 14% Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values 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 values with a minus sign. Round your final answer to the neares 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? Drow of Mout
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