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%.
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
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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%.
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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