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 final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you recommend that the company accept?
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 final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you recommend that the company accept?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
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 final answer to the nearest whole dollar amount.)
3. Which investment alternative (if either) would you recommend that the company accept?
Transcribed Image Text:EXHIBIT 14В -2
M Question 7- Chapter 14 Homework Problems - Con..
M https://ezto-cf-media.mheducation.com/Media/Con...
Present Value of an Annuity of $1 in Arrears;
b Success Confirmation of Question Subr
((1 + r))"
Periods
5%
0.962 0.952
4%
7%
0.943 0.935
6%
8%
9%
10%
11%
12%
1
0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.813 0.806 0.80C
13%
14%
15%
16%
1.886
17%
18%
19%
20%
21%
22%
24% 25%
23%
1.859
2.775 2.723
3.630 3.546
4.452 4.329
5.076
1.833
2.673 2.624 2.577
3.465 3.387 3.312 | 3.240 | 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 | 2.494 2.448 2.404 2.362
4.212 4.100
1.808
1.783 1.759| 1.736 1.713 1.690 1.668 1.647 1.626 1.605
3
2.531 2.487 2.444 2.402| 2.361 2.322 2.283 2.246 2.210 | 2.174 2.140 2.106 2.074 2.042 2.011
1.585 1.566 1.547 1.528 1.509
4
1.492 1.474 1.457
1.440
5
1.981
1.952
3.696 3.605 3.517| 3.433 3.352 3.274 3.199 3.127 3.058 2.991| 2.926 2.864 2.803 2.745 2.689
3.993 3.890 3.791
5.242
6.002
6
4.917
4.767
4.623
4.355 4.231
4.111
3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 3.245 3.167 3.092 3.020 2.951
5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 | 3.508 3.416 3.327 3.242 3.161
5.786 5.582 5.389 5.206
8
6.733
6.463
5.971 5.747
6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163| 4.031
7.024 6.710 | 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 4.054 3.923 3.799 3.682 | 3.571
6.210
7.435 7.108 6.802
5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726 3.619 3.518 3.421
9
3.329
3.905 3.786 3.673 3.566 3.463
8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234. 5.029 4.836 4.656' 4.486 4.327 | 4.177 4.035 3.902 3.776 3.656
10
8.111
7.722
7.360
11
8.760
9.385
9.986 9.394
10.563 9.899 9.295
11.118 10.380 9.712
11.652 10.838 10.106 9.447
12.166 11.274 10.477 9.763 9.122
12.659 11.690 10.828 10.059 | 9.372 | 8.756
13.134 12.085 11.158 10.336 9.604 8.950
13.590 12.462 11.470 10.594 9.818 9.129
14.029 12.821 | 11.764| 10.836 | 10.017 9.292
14.451 13.163 12.042 11.061 10.201 9.442
14.857 13.489 12.303 11.272 10.371 9.580 8.883 8.266 7.718 7.230 6.792 | 6.399 6.044 5.723 5.432 5.167 4.925 4.703 4.499 4.311 | 4.137 3.976
15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348
15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 4.721
12
8.863
7.943 7.536 7.161
8.358 7.904
8.384
6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611
13
8.853
4.439 4.278 4.127 3.985 3.851| 3.725
6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 4.362 4.203 4.053 3.912 3.780
7.786 7.367 | 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 4.432 4.265 4.108 3.962 3.824
7.487
7.103
14
8.745
8.244
15
9.108
8.559 8.061
7.606| 7.191
6.811| 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 4.489 4.315 4.153 4.001
16
|
3.859
7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938| 4.730 4.536 4.357| 4.189 4.033 3.887
8.851
8.313
17
8.544
8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 4.576 4.391
18
8.201
4.219
4.059 3.910
7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 4.608 4.419 4.243 4.080 3.928
8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 4.635 4.442 4.263 4.097 3.942
8.514 7.963 7.469 7.025 6.623 | 6.259 5.929 5.628 5.353 5.101 4.870 4.657 4.460 4.279 4.110 3.954
8.649 8.075 7.562 7.102 6.687 6.312 5.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292 4.121 3.963
8.772 8.176 7.645 7.170 6.743 6.359 6.011 5.696 5.410 5.149 4.909 4.690 4.488 4.302 4.130 3.970
19
20
21
22
23
24
7.784 7.283 6.835 6.434 6.073 5.746 5.451 5.182 4.937 4.713 4.507 4.318 4.143
25
3.981
4.514 4.323 4.147
15.983 14.375 13.003 11.826 10.810 9.929 9.161 8.488 7.896 7.372 6.906 | 6.491
3.985
6.118 5.783 5.480 5.206 4.956 4.728 4.520 4.328 | 4.151 3.988
26
16.330 14.643 13.211 11.987 10.935 10.027 9.237 8.548 7.943 | 7.409 6.935 6.514 6.136| 5.798 5.492 5.215 4.964 4.734 | 4.524 4.332 4.154 3.990
16.663 14.898 13.406 12.137 11.051 10.116 9.307 8.602 | 7.984 7.441 6.961 | 6.534 | 6.152 | 5.810 5.502 5.223 | 4.970 4.739 | 4.528 4.335 4.157 3.992
16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.650 8.022
17.292 15.372 13.765 12.409 11.258 10.274 9.427 | 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979 4.746 4.534 4.339
19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951
27
28
29
7.470 6.983 6.551
6.166 5.820 | 5.510 | 5.229 4.975 4.743 4.531
4.337 4.159 3.994
4.160 3.995
4.166
30
40
|
8.244 7.634
7.105 6.642 6.233 5.871
5.258 4.997 4.760| 4.544 4.347
5.548
3.999
Transcribed Image Text:EXHIBIT 14B-1
Present Value of $1;
1.comyMedia/Con.
b Success Confirmation of Question Submis:
((1 + r))"
Periods
4%
5%
6%
7%
8%
0.962 0.952 0.943 0.935
9%
10%
11%
12%
13%
14%
16% 17%
1
15%
18%
19%
20%
25%
0.926 0.917 0.909 | 0.901 0.893 0.885 0.877 0.870 | 0.862 0.855 0.847 | 0.840 0.833 0.826 0.820 0.813 0.806 0.800
21%
22%
23%
24%
0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694 0.683 | 0.672 | 0.661 0.650 0.640
3
0.889 0.864 0.840
0.816 0.794 0.772
0.772 | 0.751
0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.564 0.551
0.537 0.524 0.512
0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 | 0.467 0.451| 0.437 0.423 | 0.410
4
5
0.822 0.784 0.747 0.713 0.681
0.650 | 0.621
0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.386 0.370 0.355 0.341
6.
0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.319 0.303 0.289 0.275 0.262
0.731
0.703
0.676 | 0.614 0.558 0.508
0,328
0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 | 0.279 | 0.263 | 0.249 | 0.235 | 0.222 | 0.210
0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 | 0.233 0.218 0.204 | 0.191 | 0.179 | 0.168
0.645 0.592 0.544 0.500 0.460 0.424 0.391 0,361 | 0.333 0.308 0.2840.263 0.243 0.225 0.209 0.194 0.180 0.167 0.155 0.144 0.134
8
9
10
0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 | 0.191
0.176 0.162 0.149 0.137 0.126 | 0.116 0.107
0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.123 0.112 0.103 0.094
0.557
0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.084 0.075 0.068
11
0.650
| 0.086
0.625
0.601
0.577 0.505 0.442 0.388
0.555 0.481 0.417 0.362 0.315
0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.047 0.042 0.036 0.032 | 0.028
0.513 0.436 0.371
0.494
12
0.497
0.444
0.397
0.356 0.319 0.286 0.257 0.231
0.208 0.187 0.168 0.152 0.137 0.124 0.112 | 0.102 0.092 0.083 0.076
0.069
0.061 0.055
0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.069 0.062 0.055 0.049 0.044
13
14
15
0.275 0.239
0.239 |
0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.057 |
0.051 0.045 0.040 0.035
16
17
0.317 0.270
0.231 0.1980.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045
0.039
0.034 0.030 0.026 0.023
0.416 0.350 0.296 0.250 | 0.212 0.180 | 0.153 0.130 | 0.111 0.095 0.081 0.069 0.059 0.051
0.396 0.331
0.377 0.312 0.258 0.215
18
0.044 0.038 0.032 0.028
0.018
0.070 0.060 0.051
0.061 0.051 0.043 0.037 0.031
0.053 0.044 0.037
0.232 0.194 0.164 0.138 0.116 0.098
0.043 0.037 0.031
0.026
0.020 | 0.017
0.475
0.456
0.439 0.359
0.422 | 0.342 0.278
0.406 0.326 0.262
0.390 0.310 0.247
0.375 0.295 0.233
19
0.277
0.083
0.027 0.023
0.014
0.178 0.1490.124 0.104 0.087 0.073
0.294 0.242 0.199 0.164 0.135 0.112 0.093 0.077 0.064
20
0.022 | 0.019 0.016 0.014
0.012
0.026 0.022 0.018 0.015 0.013 0.011
0.018 | 0.015 0.013 | 0.011
0.012 | 0.010 0.009
0.009
0.009 0.007
0.007 0.006
0.006 | 0.005
0.005
21
0.031
0.226 0.184 0.150 0.123 0.101
| 0.211
0.083 0.068 0.056 0.046 0.038 0.032 0.026 0.022
0.074 0.060 0.049 0.040 0.033 0.027 0.022
22
0.112 0.091
0.018 0.015
0.170 | 0.138
0.158 0.126 0.102 0.082 0.066 0.053 0.043 0.035 0.028 0.023
23
|0.013 |0,010 0.008
0.009 | 0.007
24
0.247 0.197
0.019 0.015
0.007
0,006
0.006 | 0.005
0.004
25
0.184 0.146 0.116 0.092 0.074 0.059 | 0.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010
0.004 |0.003
0.011| 0.009 0.007
0.009 0.007 | 0.006 | 0.005 0.004
0.026 0.021 0.017 0.014
0.281
0.220 0.172 0.135 0.106 0.084 0.066 0.053 0.042 0.033
26
0.361
0.003
0.002
0.347
0.333 | 0.255
0.321 0.243
0.268 0.207 0.161
0.196 0.150
0.185 0.141
0.174 0.131
0.125 0.098 0.076 0060 0.047 0.037 0.029 0.023 0,018 0.014 0.011
0.116 0.090 0.069 0.054 0.042 0.033 0.026 0.020 0.016
0.107 | 0.082 0.063 0.048 0.037 0.029 0.022 0.017 0.014 0.011
0.0990.075 | 0.057
27
0.012 0.010 0.008 0.006 0.005
0.008 0.006 0.005 0.004
0.005 0.,004 0.003
0.002
0.002
0.004
0.003
0.002
28
0.003 0.002
0.002
29
0,002 0.002
0.001
0.044 0.033 0.026 | 0.020 0.015 0.012 0.009 0.007
0.011 0.008 0.005 0.004 0.003
0.003
0.308
0.208
30
0.231
| 0.002 0.001 0.001 0.001
0,000 0.000 0.000 0.000 0.000
40
0.142 0.097 0.067 0.046 0.032 0.022 0.015
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