Perit Industries has $135,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Project A Project B $135,000 $ 0 $ $135,000 $ 66,000 $ 0 Working capital investment required Annual cash inflows 0 $ 22,000 $ 8,400 Salvage value of equipment in six years 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 17%. 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 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?

Perit Industries has $135,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Project A Project B $135,000 $ 0 $ $135,000 $ 66,000 $ 0 Working capital investment required Annual cash inflows 0 $ 22,000 $ 8,400 Salvage value of equipment in six years 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 17%. 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 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?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 4P

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