Perit Industries has $140,000 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 $ 140,000 Project B $0 $ 140,000 $ 60,000 $ 26,000 $ 9,700 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 17%. Click here to view Exhibit 12B-1 and Exhibit 12B-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? 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?
Perit Industries has $140,000 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 $ 140,000 Project B $0 $ 140,000 $ 60,000 $ 26,000 $ 9,700 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 17%. Click here to view Exhibit 12B-1 and Exhibit 12B-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? 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Perit Industries has $140,000 to invest. The company is trying to decide between two alternative use
of the funds. The alternatives are:
ises
Project 8
Project A
$ 140,000
Cost of equipment required
Working capital investment required
Annual cash inflows
Salvage value of equipment in six years
Life of the project
$ 140,000
$ 60,000
$ 26,000
$ 9,700
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 17%.
Click here to view Exhibit 12B-1 and Exhibit 12B-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?
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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