Gadubhai Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternativesare:Cost of equipment requiredWorking capital investment requiredAnnual cash inflowsSalvage value of equipment in six yearsLife of the projectProject A$ 155,000$ 0Project B$ 0$ 155,000$ 20,000$ 9,400$ 55,0006 years$ 06 years.The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discountrate is 14%.Click here to view Exhibit 14B-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 nearestwhole dollar amount.)2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearestwhole dollar amount.)3. Which investment alternative (if either) would you recommend that the company accept?1. Net present value project A2. Net present value project B3. Which investment alternative (if either) would yourecommend that the company accept?

To find the Net Present Value of both projectsStep 1: Let us identify the givenFor Project ACost of…

Answered: Perit Industries has $155,000 to…

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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