Question
In: Accounting
Perit Industries has $115,000 to invest. The company is trying to decide between two alternative uses...
Perit Industries has $115,000 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 | $ | 115,000 | $ | 0 |
| Working capital investment required | $ | 0 | $ | 115,000 |
| Annual cash inflows | $ | 21,000 | $ | 69,000 |
| Salvage value of equipment in six years | $ | 8,700 | $ | 0 |
| Life of the project | 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 15%.
Click here to view Exhibit 13B-1 and Exhibit 13B-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?
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Perit Industries has $110,000 to invest. The company is trying to decide between two alternative uses...
Perit Industries has
$110,000 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
$
110,000
$
0
Working capital
investment required
$
0
$
110,000
Annual cash
inflows
$
20,000
$
28,000
Salvage value of
equipment in six years
$
8,100
$
0
Life of the
project
6 years
6 years
The working capital
needed for project B will be released at the...
Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses...
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
Project B
Cost of equipment required
$
155,000
$
0
Working capital investment
required
$
0
$
155,000
Annual cash inflows
$
25,000
$
40,000
Salvage value of equipment in
six years
$
8,600
$
0
Life of the project
6 years
6 years
The working capital needed for project B will be released at the...
Perit Industries has $100,000 to invest. The company is trying to decide between two alternative uses...
Perit Industries has $100,000 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
$
100,000
$
0
Working capital investment required
$
0
$
100,000
Annual cash inflows
$
21,000
$
16,000
Salvage value of equipment in six years
$
8,000
$
0
Life of the project
6 years
6 years
The working capital needed for project B will be released at the...
Perit Industries has $125,000 to invest. The company is trying to decide between two alternative uses...
Perit Industries has $125,000 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
$125,000
$0
Working capital
investment required
$0
$125,000
Annual cash
inflows
$23,000
$71,000
Salvage value of
equipment in six years
$8,900
$0
Life of the
project
6 years
6 years
The working capital needed for project B will be...
Perit Industries has $100,000 to invest. The company is trying to decide between two alternative uses...
Perit Industries has $100,000 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
$100,000
$0
Working capital
investment required
$0
$100,000
Annual cash
inflows
$21,000
$15,750
Salvage value of
equipment in six years
$8,000
$0
Life of the
project
6 years
6 years
The working capital needed for project B will be released at the...
Perit Industries has $100,000 to invest. The company is trying to decide between two alternative uses...
Perit Industries has $100,000 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
$100,000
$0
Working capital
investment required
$0
$100,000
Annual cash
inflows
$21,000
$15,750
Salvage value of
equipment in six years
$8,000
$0
Life of the
project
6 years
6 years
The working capital needed for project B will be released at the...
Janel Industries has $150,000 to invest. The company is trying to decide between two alternative uses...
Janel Industries has $150,000 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
150,000
0
Working capital investment required
0
150,000
Annual cash inflows
31,000
16,000
Salvage value of equipment in five years
25,000
0
Life of the project
5 Years
5 Years
The working capital needed for project B will be released at the
end of fifth years for investment elsewhere. Janel...
Top Notch Limited has $750,000 to invest and is trying to decide between two alternative uses...
Top Notch Limited has $750,000 to invest and is trying to decide
between two alternative uses of the funds. The alternatives are as
follows:
A
B
Cost of equipment
required
$
750,000
$
0
Working capital investment required
$
0
$
750,000
Annual cash inflows
$
210,000
$
150,000
Salvage value of equipment in seven years
$
50,000
$
0
Life of the project
7 years
7 years
The working capital needed for Project B will be released for
investment...
a) Indigo Inc. has $581,180 to invest. The company is trying to decide between two alternative...
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decide between two alternative uses of the funds. One alternative
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to decide between two alternative uses of the funds. One
alternative provides $80,173 at the end of each year for 12 years,
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