Perit Industries has $180,000 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 $ 180,000 Project A $ 0 Project B $ 0 $ 180,000 $ 32,000 $ 9,300 $ 54,000 6 years $ 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 15%. 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 $180,000 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 $ 180,000 Project A $ 0 Project B $ 0 $ 180,000 $ 32,000 $ 9,300 $ 54,000 6 years $ 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 15%. 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 $180,000 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
$ 180,000
Project A
$ 0
Project B
$ 0
$ 180,000
$ 32,000
$ 9,300
$ 54,000
6 years
$ 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 15%.
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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