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.
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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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
$ 130,000
$0
$ 22,000
$ 8,300
Cost of equipment required
Working capital investment required
Annual cash inflows
Salvage value of equipment in six years
Life of the project
6 years
Project B
$0
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?
$ 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' discount
rate is 14%.
Click here to view Exhibit 148-1 and Exhibit 148-2, 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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2379599b-095c-41d9-823c-a4a4a68396e1%2Fe20b0fc0-06f0-4e8b-a28e-bce7b629a385%2Fodvqv6q_processed.jpeg&w=3840&q=75)
Transcribed Image Text:es
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
$ 130,000
$0
$ 22,000
$ 8,300
Cost of equipment required
Working capital investment required
Annual cash inflows
Salvage value of equipment in six years
Life of the project
6 years
Project B
$0
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?
$ 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' discount
rate is 14%.
Click here to view Exhibit 148-1 and Exhibit 148-2, 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?
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