Perit Industries has $210,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Project B Cost of equipment required $ 210,000 $0Working capital investment required $0 $ 210,000 Annual cash inflows $ 30,000 $ 52,000 Salvage value of equipment in six years $ 9, 100 $ 0 Life of the project 6 years 6 years The working capitalneeded 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 14B-1 and Exhibit 14B-2, to determine theappropriate 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 dollaramount.) 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 (ifeither) would you recommend that the company accept?

Net present value is difference between present value of cash inflows and present value of cash…

Answered: Perit Industries has $210,000 to…

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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Courtney Limited has capital project opportunities each of which would require an initial investment of $400,000. Details for each opportunity are shown below: Investment in manufacturing equipment Investment 1 $400,000 Investment 2 Investment in working capital Net annual cash inflows $100,000 $400,000 $100,000 Life of the project CCA 12 Years 30% 12 Years ces The robotic equipment would have a salvage value of $75,000 in 12 years. The equipment would be depreciated over 12 years. At the end of 12 years, the investment in working capital would be released for use elsewhere. The company requires an after-tax return of 12% on all investments. The tax rate is 30%. Required: Compute the net present value of each investment project. (Hint Use Microsoft Excel to calculate the discount factor(s).) (Do not round intermediate calculations and PV factor. Round the final answers to the nearest whole dollar.) Investment 1 Investment 2 Net present value
Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Cost of equipment required Working capital investment required. Annual cash inflows $ 155,000 Project B $ 0 $ 0 $ 155,000 Salvage value of equipment in six years $ 25,000 $ 8,600 $ 40,000 Life of the project 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 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…
Darnell Limited has capital project opportunities each of which would require an initial investment of $250,000. Details for each opportunity are shown below: Investment 1 Investment 2 Investment in robotic equipment $ 250,000 Investment in working capital $ 250,000 Net annual cash inflows $ 40,000 $ 40,000 Life of the project 15 Years 15 Years CCA 20 % The robotic equipment would have a salvage value of $25,000 in 15 years. The equipment would be depreciated over 15 years. At the end of 15 years, the investment in working capital would be released for use elsewhere. The company requires an after-tax return of 10% on all investments. The tax rate is 30%. Required:Compute the net present value of each investment project. (Hint: Use Microsoft Excel to calculate the discount factor(s).) (Do not round intermediate calculations. Round your PV factor to 3 decimal places and round the final answers to the nearest whole dollar.)
Santana Co. is evaluating a project requiring a capital expenditure of $790,000. The project has an estimated life of 4 years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $ 75,000 $280,000 2 100,000 300,000 3 109,000 200,000 4 36,000 120,000 $320,000 $900,000 The company's minimum desired rate of return is 9%. The present value of $1 at compound interest of 9% for 1, 2, 3, and 4 years is 0.9174, 0.8417, 0.7722, and 0.7084 respectively. Determine the net present value of the project. Should Santana proceed?
Melton Manufacturing Ltd is considering two alternative investment projects. The first project calls for a major renovation of the company's manufacturing facility. The second involves replacing just a few obsolete pieces of equipment in the facility. The company will choose one project or the other this year, but it will not do both. The cash flows associated with each project appear below and the firm discounts project cash flows at 10%. Year Renovate Replace -$4,000,000 -$1,300,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 1,000,000 700,000 300,000 2 3 150,000 150,фро 4 5 Assignment Calculate the payback period of each project and based on this criterion, indicate which project you would recommend for acceptance. • Calculate the net present value (NP) of each project and based on this criterion, indicate which project you would recommend for acceptance. • Calculate the internal rate of return (IRR) of each project and based on this criterion, indicate which project you would…
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 $ 155,000 Project A $ 0 Project B $ 0 $ 155,000 $ 25,000 $ 8,600 $ 40,000 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 14%. 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…
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Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows. Project Investment AnnualIncome Life ofProject 22A $243,600 $17,130 6 years 23A 271,500 20,700 9 years 24A 280,600 15,700 7 years Annual income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Iggy Company uses the straight-line method of depreciation.(a) Determine the internal rate of return for each project. (Round answers 0 decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Project Internal Rate ofReturn 22A % 23A % 24A % If Iggy Company’s required rate of return is 11%, which projects are acceptable?
Pina Colada Manufacturing Company is considering three new projects, each requiring an equipment investment of $25,600. Each project will last for 3 years and produce the following cash flows. Year 1 2 3 AA BB $8,200 $11,100 $12,200 11,200 10,200 16,200 Total $34,600 (a) 11,100 11,100 Payback period $33,300 CC 10,200 The salvage value for each of the projects is zero. Pina Colada uses straight-line depreciation. Pina Colada will not accept any project with a payback period over 2.2 years, Pina Colada's minimum required rate of return is 12%. Click here to view PV tables. $33,600 Compute each project's payback period: (Round answers to 2 decimal places, e.g. 52.75.) AA years BB years CC years

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