Exercise 14-7 (Algo) Net Present Value Analysis of Two Alternatives [LO14-2] Perit Industries has $210,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 210,000 $0 $ 30,000 $ 9,100 6 years Project B $0 $ 210,000 $ 52,000 $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 15%. Click here to view Exhibit 148-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: . 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?

Exercise 14-7 (Algo) Net Present Value Analysis of Two Alternatives [LO14-2] Perit Industries has $210,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 210,000 $0 $ 30,000 $ 9,100 6 years Project B $0 $ 210,000 $ 52,000 $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 15%. Click here to view Exhibit 148-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: . 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?

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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Exercise 14-14 (Algo) Comparison of Projects Using Net Present Value [LO14-2] Labeau Products, Limited, of Perth, Australia, has $21,000 to invest in one of the following two projects: Project Y $ 21,000 Investment required Annual cash inflows Single cash inflow at the end of 6 years Life of the project The company's discount rate is 18%. 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 X. 2. Compute the net present value of Project Y. 3. Which project should the company accept? Project X Required 1 Required 2 Required 3 $ 21,000 $ 8,000 Complete this question by entering your answers in the tabs below. $ 50,000 6 years
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Exercise 14-2 (Algo) Net Present Value Analysis [LO14-2] The management of Kunkel Company is considering the purchase of a $20,000 machine that would reduce operating costs by $5,000 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The company's required rate of return is 13%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Required: 1. Determine the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the net present value of the investment in the machine. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount. Use the appropriate table to determine the discount factor(s).) Net present value…
Question 10.2 Shooting Star, Inc. is considering a project that would have an eight -year life and would require a $2,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net income each year as follows: Sales $2,000,000 Less: Variable Expenses $1,600,000 Contribution Margin $400,000 Less: Fixed Expenses $200,000 Net Income $200,000 All of the above items, except for depreciation of $200,000 a year, represent cash flows. The depreciation is included in the fixed expenses. The company's required rate of return is 10%. (Ignore income taxes in this problem.) Required: What is the project's net present value? What is the project's internal rate of return? What is the project's payback period? What is the project's simple rate of…
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QUESTION 1 Max Ltd is trying to decide which project should be taken up, out of three possible investments. The initial investment would amount to RM250,000. Scrap value at end would be nil. Cost of capital is 9%. The net cash inflows from the three projects under consideration are: Project A Project C RM RM Period Year 1 Year 2 Year 3 Year 4 Year 5 Total Required: 50,000 60,000 70,000 80,000 100,000 360,000 Project B RM 70,000 100,000 130,000 300,000 80,000 80,000 80,000 80,000 320,000 For each possible project you are required to calculate: (a) Accounting rate of return (ARR) (b) Payback period (PP) (c) Net present value (NPV) (d) Internal rate of return (IRR) (e) Should the project be accepted? Why? Justify your answer in respect of all scenarios.
Solve for 12&11 Calculating Project Cash Flow from Assets NPV and Modified ACRS
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