Perit Industries has $135,000 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 $ 135,000 50 $ 25,000 $9,800 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? 6 years Project B $0 $ 135,000 $ 63,000 $0 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%. Click here to view Exhibit 148-1 and Exhibit 148-2. 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 $135,000 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 $ 135,000 50 $ 25,000 $9,800 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? 6 years Project B $0 $ 135,000 $ 63,000 $0 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%. Click here to view Exhibit 148-1 and Exhibit 148-2. 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

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The management of Ortega Manufacturing has three different proposals under consideration. The Accounting Department has prepared the following information: Proposal B $ 2,450,000 Proposal C $ 2,055,000 Initial investment Useful life of equipment Estimated salvage value Payback period Net present value discounted at 15%* Which of the above proposals generates the greatest annual cash flow? Multiple Choice Proposal A Proposal B Proposal C Proposal A $ 3,100,000 Cannot be determined with the given information 7 Years $0 4.2 Years $ (30,000) 7 Years $ 400,000 4.4 Years $ 21,600 7 Years $ 100,000 4 Years $ 15,800
A firm is considering three mutually exclusive alternatives as part of an upgrade to an existing transportation network. If the MARR is 10% per year, which alternative (if any) should be chosen using the IRR analysis procedure? Use trial & error and show your calculations. A B Initial Cost Annual Revenue Annual Cost Salvage Value Useful Life 40,000 10,400 4,000 3,000 30,000 8,560 3,000 2,500 20,000 7,750 2,500 2,000 20 20 10
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Carla Vista Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $509,000, has an expected useful life of 12 years and a salvage value of zero, and is expected to increase net annual cash flows by $74,100. Project B will cost $342,000, has an expected useful life of 12 years and a salvage value of zero, and is expected to increase net annual cash flows by $50,700. A discount rate of 8% is appropriate for both projects. Click here to view the factor table. Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value - Project A $ Profitability index - Project A Net present value…
McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $450,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $73,500. Project B will cost $274,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $46,800. A discount rate of 9% is appropriate for both projects. Click here to view the factor table. Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to O decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value - Project A $ Profitability index- Project A Net present value - Project…
A company is intending to invest in a capital budgeting project to manufacture a medical testing device and has projected the following sales: Year 1 Year 2 Year 3 Year 4 Year 5 50,000 66,400 81,200 68,500 54,500 The installed cost of the new assets will be $18,500,000 which will be depreciated using the 7-year MACRS schedule. The assets will have a salvage value of $3,700,000. Initial NWC requirements are $1,500,000 and additional working capital needs are estimated to be 15% of the projected sales increases for the following year. Total fixed costs are $2,000,000 per year. The medical device has a selling price of $300 per unit and variable production costs are $175. The firm has a marginal tax rate of 35% and a required rate of return of 18%. Analyze this project and give your recommendation as to whether they should invest in it or…
Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Present Value of Life of the Project A Investment Required Cash Inflows Project Internal Rate (years) of Return $ 160,000 $ 259,323 7 16% B $ 135,000 $ 232,000 12 18% $ 100,000 $ 190,035 7 D $ 164,000 $ 268,136 3 22% 17% The net present values should be computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth. Required: 1. Compute the profitability index for each project. 2. In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return. Complete this question by entering your answers in the tabs below. Required 1 Required 2 In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return. Net Present Value Profitability…
6. An elective project is currently under review. One alternative requires an initial investment of $116,000 for equipment. The profit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. A second alternative requires an initial investment of $60,000 for equipment. The profit is projected to be $16,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $14,000. The IRR of this alternative is 18.69%. Determine which alternative is preferred using the appropriate IRR method. Assume a MARR of 10%. Justify your recommendation, based on this method.
U3 Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows Capital investment Annual net income: (a) Year 1 2 3 4 5 Total ow Transcribed Text Project Bono $160,000 Project Bono 14,000 Project Edge 14,000 Project Clayton 14.000 ow Transcribed Text 14,000 Your answer is incorrect. 14,000 $70,000 Project Edge Project Clayton $175,000 $200,000 18,000 17,000 16,000 12,000 9,000 Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15% (Assume that cash $72,000 O Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.) Click here to view PV table. years Compute the cash payback period for each project. (Round answers to 2 decimal places, eg years C years 27,000 23,000 9 21.000 13,000 C 12,000 $96,000 1.50.) (b) The parts…
The following data pertain to an investment proposal (Ignore income taxes.): Cost of the investment $ 36,000 Annual cost savings $ 11,000 Estimated salvage value $ 4,000 Life of the project 5 years Discount rate 13% Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. The net present value of the proposed investment is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.)
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