Perit Industries has $115,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives re: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 115,000 $ 21,000 $ 8,700 6 years Project B $0 $ 115,000 $ 69,000 $0 6 years
Perit Industries has $115,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives re: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 115,000 $ 21,000 $ 8,700 6 years Project B $0 $ 115,000 $ 69,000 $0 6 years
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Subject :- Account
Transcribed Image Text:Perit Industries has $115,000 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
$ 115,000
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?
$0
$ 21,000
$ 8,700
6
Project B
$0
$ 115,000
$ 69,000
$0
6 years
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 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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