Exercise 14-7 (Algo) Net Present Value Analysis of Two Alternatives [LO14-2] Perit Industries has $130,000 to invest in one of the following two projects: Project A Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project $ 130,000 $0 $ 22,000 $ 8,300 6 years Project B se $ 130,000 $ 33,000 $0 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' dis rate is 14%. Click here to view Exhibit 148-1 and Exhibit 148-2, to determine the appropriate discount factor(s) using tables.

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.