Vishnu Perit Industries has $155,000 to invest in one of the following two projects:Project A$ 155,000$ 0Project B$ 0Cost of equipment requiredWorking capital investment requiredAnnual cash inflowsSalvage value of equipment in six yearsLife of the project$ 25,000$ 8,600$ 155,000$ 40,0006 years$ 06 yearsThe working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discountrate is 14%.Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.Required:1. Compute the net present value of Project A.Note: 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.Note: 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 A2. Net present value project B3. Which investment alternative (if either) would yourecommend that the company accept?Project B

project B is a better investment for Perit Industries because it has a positive netpresent Value…

Answered: Perit Industries has $155,000 to invest…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

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1
The industry has invested $100,000. They are trying to decide between two alternatives uses of the funds Project A Project B Cost of equipment required $100,000 $0 Working capital investment required $0 $100,000 Annual Cash Inflows $21,000 $16,000 Salvage value of equipment in 6 yrs $8,000 $0 Life of project 6 years 6 years The working capital needed for project B will be released at the end of the six-years for investment elsewhere. The industry discount rate 14%. 1.Compute the net present value of project A 2. Compute the net present value of project B Which investment alternative if either would you recommend to the company to accept? Thank you,
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