Capital Budgeting DecisionsEXERCISE 13-7 Net Present Value Analysis of Two Alternatives LO13-2Perit Industries has $100,000 to invest. The company is trying to decide between two alternativene.uses of the funds. The alternatives are:aceyProject A Project BCost of equipment required ..Working capital investment requiredAnnual cash inflows ..Salvage value of equipment in six yearsLife of the project .$100,000$0...$0 $100,000$21,000$8,000$16,000$06 years6 yearsThe working capital needed for project B will be released at the end of six years for investmentelsewhere. Perit Industries' discount rate is 14%.Required:1. Compute the net present value of Project A.. Compute the net present value of Project B.3. Which investment alternative (if either) would you recommend that the company accept?

1. Compute net present value of project A: Note: 3.889 value from PVIFA factor table @14%, 6th…

Answered: Capital Budgeting Decisions EXERCISE…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Year O 1 2 4 3 O $1.838.67 O $1.854.03 O $2,167.89 Given this information, and assuming that the relevant cost of capital for both projects is 9%. determine the net present value (NPV) for the project with the highest internal rate of return (IRR). O $2.105.21 Project A Cash Flow $10,000 00 $1,905.54 $ 3.000.00 $4,000.00 $5,000.00 $3,000.00 Project B Cash Flow $11,000 00 $5,000.00 $ 4,000.00 $4,000.00 $3,000.00
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Solve for 12&11 Calculating Project Cash Flow from Assets NPV and Modified ACRS
After-tax cash flows: Year 1 2 3 4 Project Alpha R 37 000 72 400 246 000 Project Omega R 72 000 72 000 72 000 72 000 Both projects require an initial investment of R235 400 and the cost of capital is 12%. As the project manager of Delta Construction Ltd. you are required to: 1.2.1 Calculate the Net Present Valub (NPV) for both projects. 1.2.2 Recommend, with reasons which project should be chosen
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Exercise 14-7 (Algo) Net Present Value Analysis of Two Alternatives [LO14-2] Perit Industries has $115,000 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 $ 115,000 $ 0 Working capital investment required $ 0 $ 115,000 Annual cash inflows $ 21,000 $ 69,000 Salvage value of equipment in six years $ 8,700 $ 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 15%. 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. (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…
Solve 1-3
You are given the following cash flow information for Project A TV Inflows Year 0 PV Outflows -$150,000.00 1 Project A -$150,000.00 $80,000.00 -$25,000.00 $50,000.00 2 $80,000.00 -$30,000.00 $75,000.00 Totals 3 4 5 6 O 19.33% $75,000.00 Now assume that the project's cost of capital is 16.0 percent, but that its true reinvestment rate is 24.0 percent. Given this information, determine the project's modified internal rate of return (MIRR). Ⓒ 18.56% 5 pts
Exercise 14-11 (Algo) Preference Ranking of Investment Projects [LO14-5] Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Project InvestmentRequired PresentValue of Cash Inflows Life oftheProject(years) InternalRateof Return A $ 200,000 $ 234,323 7 22% B $ 118,000 $ 207,000 12 19% C $ 103,000 $ 165,035 7 20% D $ 162,000 $ 243,136 3 17% The net present values should be computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth. Required: 1. Compute the profitability index for each project. 2. In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return.
9–19 Following is information about two independent projects that a company is evaluating: Capital Budgeting Technique Project X Project Y Net Present Value $5,000 $4,950 Internal rate of return 15.5% 17.0% Discounted payback period 5.1 yrs 4.6 yrs (a) Which project(s) should be chosen? Explain why. (b) What can be concluded about the company’s required rate of return, r?
Problem 5: Platypus Corporation's managers have presented the company's management with two proposals for expanding its production capacity. Based on the following two different alternatives, which proposal should they adopt? Cost of the Equipment Required Project 1 $250,000 Working Capital Investment Required 0 Annual Cash Inflows $65,000 Maintenance cost in year 4 $15,000 Maintenance cost in year 6 0 Salvage Value of Equipment in 8 Years $12,000 Project 2 $100,000 $150,000 $50,000 0 $15,000 0 Both projects have a life of 8 years. In 8 years Project 2's working capital will be released and be available to invest in other projects. The company has a discount rate of 16% Required: 1) Calculate the net present value for each project. 2) Based solely on the net present value of the project, which alternative would you recommend the company invest in? Why?

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