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Perit Industries has $155,000 to invest in one of the following two projects: Project A $ 155,000 $ 0 Project B $ 0 Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project $ 25,000 $ 8,600 $ 155,000 $ 40,000 6 years $ 0 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 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. Note: 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. Note: 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? 1. Net present value project A 2. Net present value project B 3. Which investment alternative (if either) would you recommend that the company accept? Project B

Perit Industries has $155,000 to invest in one of the following two projects: Project A $ 155,000 $ 0 Project B $ 0 Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project $ 25,000 $ 8,600 $ 155,000 $ 40,000 6 years $ 0 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 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. Note: 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. Note: 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? 1. Net present value project A 2. Net present value project B 3. Which investment alternative (if either) would you recommend that the company accept? Project B

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 17P
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Vishnu 

Perit Industries has $155,000 to invest in one of the following two projects: Project A $ 155,000 $ 0 Project B $ 0 Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project $ 25,000 $ 8,600 $ 155,000 $ 40,000 6 years $ 0 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 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. Note: 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. Note: 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? 1. Net present value project A 2. Net present value project B 3. Which investment alternative (if either) would you recommend that the company accept? Project B
Transcribed Image Text:Perit Industries has $155,000 to invest in one of the following two projects: Project A $ 155,000 $ 0 Project B $ 0 Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project $ 25,000 $ 8,600 $ 155,000 $ 40,000 6 years $ 0 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 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. Note: 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. Note: 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? 1. Net present value project A 2. Net present value project B 3. Which investment alternative (if either) would you recommend that the company accept? Project B
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