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 $155,00e s Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project e $155, 000 $ 20,000 $ 55, 8ee $ 9,400 $ 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 14%. Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables. Requlred: 1. Compute the net present value of Project A. (Enter negative value 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 value 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 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: Project A Project B $155,00e s Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project e $155, 000 $ 20,000 $ 55, 8ee $ 9,400 $ 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 14%. Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables. Requlred: 1. Compute the net present value of Project A. (Enter negative value 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 value 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 Which investment alternative (if either) would you recommend that the company accept?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
Problem 4P
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Question
![Perit Industries has $155.000 to invest. The company is trying to decide between two alternative uses of the funds. The altematives
are:
Project A Project B
$155,000
Cost of equipment required
Working capital investment required
Annual cash inflows
Salvage value of equipment in six years
Life of the project
$ 20,000
$ 9,400
6 years
$155, 000
$ 55,000
24
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.
Requlred:
1. Compute the net present value of Project A. (Enter negative value 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 value 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
Which investment alternative (if either) would you
3.
recommend that the company accept?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc4c586ae-4106-4802-b9ef-8f91bcf476e5%2F3cf98919-748b-42ca-9d1c-32932c1211f1%2Fcy57odj_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Perit Industries has $155.000 to invest. The company is trying to decide between two alternative uses of the funds. The altematives
are:
Project A Project B
$155,000
Cost of equipment required
Working capital investment required
Annual cash inflows
Salvage value of equipment in six years
Life of the project
$ 20,000
$ 9,400
6 years
$155, 000
$ 55,000
24
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.
Requlred:
1. Compute the net present value of Project A. (Enter negative value 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 value 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
Which investment alternative (if either) would you
3.
recommend that the company accept?
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