Perit Industries has $155,000 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 $ 155,000 $ 0 Project B $ 0 $ 155,000 $ 40,000 $ 8,600 6 years $ 25,000 $ 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 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. (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 $155,000 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 $ 155,000 $ 0 Project B $ 0 $ 155,000 $ 40,000 $ 8,600 6 years $ 25,000 $ 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 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. (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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Flounder Manufacturing Company is considering three new projects, each requiring an equipment investment of $23,800. Each project will last for 3 years and produce the following cash flows. Year 1 2 3 Total AA $7,600 $10,300 9,600 15,600 (a) $32,800 BB Payback period 10,300 Click here to view PV tables. 10,300 Most desirable $30,900 The salvage value for each of the projects is zero. Flounder uses straight-line depreciation. Flounder will not accept any project with a payback period over 2.2 years. Flounder's minimum required rate of return is 12%. Least desirable CC $11,600 10,600 9,600 Compute each project's payback period. (Round answers to 2 decimal places, e.g. 52.75.) $31,800 AA years BB Indicating the most desirable project and the least desirable project using this method. years CC years
The management of FICSIT Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:YearWind TurbinesBiofuel Equipment1$270,000$300,5002270,000300,5003270,000300,5004270,000300,500The wind turbines require an investment of $877,600, while the biofuel equipment requires an investment of $910,000. No residual value is expected from either project.Problem 2 Instructions a. Determine the internal rate of return for each project by:i. computing a present value factor for an annuity of $1 and ii. using the present value of an annuity of $1 table appearing in this chapter (Exhibit 5).
Give typing answer with explanation and conclusion
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 tunnel to transport water initially cost $1,000,000 and has expected maintenance costs that will occur in a 6-year cycle as shown below, assume MARR is 5% per year. End of Year: 2 4 6. Maintenance: $35,000 $35,000 $35,000 $45,000 $45,000 $60,000 Compute the Equivalent Annual Cost of the maintenance. Hint: Don't insert the negative sign Compute the Capitalized Cost? Hint: Don't insert the negative sign
Subject- account
None
Project Phoenix costs $1.25 million and yields annual cost savings of $300,000 for seven years. The assets involved in the project can be salvaged for $100,000 at the end of the project. Ignoring taxes, what is the payback period for Project Phoenix? Select one: a. 4 years b. 4 years and 1.7 months c. 4 years and 2 months d. 4 years and 3 months e. 5 years
Bridgeport Company is considering two capital expenditures. Relevant data for the projects are as follows: Project Initial investment Annual cash inflow Life of project Salvage value A $260,084 $46,590 Project A 7 years $0 Project B Click here to view the factor table. Bridgeport Company uses the straight-line method to depreciate its assets. B $278,237 Calculate the internal rate of return for each project. (For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25125. Round answers to O decimal places, e.g. 15%.) $44,540 9 years $0 Internal rate of return % %
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…
Follow the format shown in Exhibit 12B.1 and Exhibit 12B.2 as you complete the requirement below. Woodard Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines. The outlay required is $700,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses 1 2 3 4 5 $1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 $1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 Required: Compute the investment's Net Present Value, assuming a required rate of return of 8 percent. Round present value calculations and your final answer to the nearest dollar. NPV = $ X
Vaughn Company is considering two capital investment proposals. Estimates regarding each project are provided below- Project Soup Project Nuts Initial investment $390870 $600000 Annual net income 27000 45100 Net annual cash 90900 142000 inflow Estimated useful 4 years 5 years life Salvage value The cash payback period for Project Soup is

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