Perit Industries has $125,000 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 $ 125,000 $ 0 Working capital investment required $ 0 $ 125,000 Annual cash inflows $ 23,000 $ 71,000 Salvage value of equipment in six years $ 8,900 $ 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%. 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 $125,000 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 $ 125,000 $ 0 Working capital investment required $ 0 $ 125,000 Annual cash inflows $ 23,000 $ 71,000 Salvage value of equipment in six years $ 8,900 $ 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%. 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Perit Industries has $125,000 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 | $ 125,000 | $ 0 | ||
| $ 0 | $ 125,000 | |||
| Annual |
$ 23,000 | $ 71,000 | ||
| Salvage value of equipment in six years | $ 8,900 | $ 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%.
Required:
1. Compute the
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: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?
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