Perit Industries has $110,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternativ are: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 110,000 $0 $ 20,000 $ 8,600 6 years 1. Net present value project A Net present value project B Project B $0 $ 110,000 $ 68,000 $0 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discou rate is 16%. Click here to view Exhibit 148-1 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 neares whole dollar amount.) 3. Which investment alternative (if either) would you recommend that the company accept?
Perit Industries has $110,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternativ are: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 110,000 $0 $ 20,000 $ 8,600 6 years 1. Net present value project A Net present value project B Project B $0 $ 110,000 $ 68,000 $0 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discou rate is 16%. Click here to view Exhibit 148-1 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 neares whole dollar amount.) 3. 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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