Perit Industries has $130,000 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 $130,000 SO $21,000 $8,100 6 years Project B SO $130,000 $65,000 SO 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 17%.
Perit Industries has $130,000 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 $130,000 SO $21,000 $8,100 6 years Project B SO $130,000 $65,000 SO 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 17%.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
Problem 4P
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![Perit Industries has $130,000 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
$130,000
SO
$8,100
Project B
6 years
SO
$21,000 $65,000
$130,000
SO
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 17%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa0101a30-385b-4cd6-9dde-c8283947748c%2F513c3cd6-182c-4c93-be73-004f8c212e78%2F8ha6s5a_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Perit Industries has $130,000 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
$130,000
SO
$8,100
Project B
6 years
SO
$21,000 $65,000
$130,000
SO
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 17%.
![Required:
a.
Calculate net present value for each project. (Any cash outflows should be indicated by a minus sign. Use the appropriate
table to determine the discount factor(s).)
Project A:
Purchase of equipment
Annual cash inflows
Salvage value
Total cash flows
Discount factor (17%)
Present value
Net present value
Project B:
Working capital invested
Annual cash inflows
Working capital released
Total cash flows
Discount factor (14%)
Present value
Net present value
Now
1
2
3
4
5
01](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa0101a30-385b-4cd6-9dde-c8283947748c%2F513c3cd6-182c-4c93-be73-004f8c212e78%2Fi281cbj_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Required:
a.
Calculate net present value for each project. (Any cash outflows should be indicated by a minus sign. Use the appropriate
table to determine the discount factor(s).)
Project A:
Purchase of equipment
Annual cash inflows
Salvage value
Total cash flows
Discount factor (17%)
Present value
Net present value
Project B:
Working capital invested
Annual cash inflows
Working capital released
Total cash flows
Discount factor (14%)
Present value
Net present value
Now
1
2
3
4
5
01
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