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...
a) Indigo Inc. has $581,180 to invest. The company is trying to
decide between two alternative uses of the funds. One alternative
provides $77,120 at the end of each year for 12 years, and the
other is to receive a single lump-sum payment of $1,823,990 at the
end of the 12 years. Which alternative should Indigo select? Assume
the interest rate is constant over the entire investment.
b) Indigo Inc. has completed the purchase of new Dell computers.
The fair...
(1) Wildhorse Inc. has $574,100 to invest. The company is trying to decide between two alternative...
(1) Wildhorse Inc. has $574,100 to invest. The company is trying
to decide between two alternative uses of the funds. One
alternative provides $80,173 at the end of each year for 12 years,
and the other is to receive a single lump-sum payment of $1,801,773
at the end of the 12 years. Which alternative should Wildhorse
select? Assume the interest rate is constant over the entire
investment.
ALTERNATE ONE OR
ALTERNATE TWO
(2) Wildhorse Inc. has completed the purchase of...
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