Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives 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 $ 155,000 $ 0 Project B $ 0 $ 155,000 $ 20,000 $ 9,400 $ 55,000 6 years $ 0 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 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 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? 1. Net present value project A 2. Net present value project B 3. 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: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 155,000 $ 0 Project B $ 0 $ 155,000 $ 20,000 $ 9,400 $ 55,000 6 years $ 0 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 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 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? 1. Net present value project A 2. Net present value project B 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
Related questions
Question
Gadubhai
![Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives
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
$ 155,000
$ 0
Project B
$ 0
$ 155,000
$ 20,000
$ 9,400
$ 55,000
6 years
$ 0
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 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 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?
1. Net present value project A
2. Net present value project B
3. Which investment alternative (if either) would you
recommend that the company accept?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0d989e26-69f5-4928-a20e-6276a48a191f%2Ff489848b-5be2-4cbf-8d73-275545203a6f%2Fbpbnwxc_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 alternatives
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
$ 155,000
$ 0
Project B
$ 0
$ 155,000
$ 20,000
$ 9,400
$ 55,000
6 years
$ 0
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 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 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?
1. Net present value project A
2. Net present value project B
3. Which investment alternative (if either) would you
recommend that the company accept?
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781337912020/9781337912020_smallCoverImage.jpg)
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
![Cornerstones of Cost Management (Cornerstones Ser…](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781337912020/9781337912020_smallCoverImage.jpg)
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
![Cornerstones of Cost Management (Cornerstones Ser…](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
![Intermediate Financial Management (MindTap Course…](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)