Perit Industries has $175,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Cost of equipment required Working capital investment required Annual cash inflows $ 175,000 Project B $ 0 Salvage value of equipment in six years $ 0 $ 27,000 $ 8,800 $ 175,000 $ 44,000 $ 0 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 15%. 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 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 $175,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Cost of equipment required Working capital investment required Annual cash inflows $ 175,000 Project B $ 0 Salvage value of equipment in six years $ 0 $ 27,000 $ 8,800 $ 175,000 $ 44,000 $ 0 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 15%. 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 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
Section: Chapter Questions
Problem 12P
Related questions
Question
A9
![Perit Industries has $175,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives
are:
Project A
Cost of equipment required
Working capital investment required
Annual cash inflows
$ 175,000
Project B
$ 0
Salvage value of equipment in six years
$ 0
$ 27,000
$ 8,800
$ 175,000
$ 44,000
$ 0
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 15%.
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 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%2Fda913e1b-65ed-4779-b2bb-c203a69753a2%2Fb866a939-61bd-4111-8bb2-22cdc5cd9cc3%2Fh7r1c9_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Perit Industries has $175,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives
are:
Project A
Cost of equipment required
Working capital investment required
Annual cash inflows
$ 175,000
Project B
$ 0
Salvage value of equipment in six years
$ 0
$ 27,000
$ 8,800
$ 175,000
$ 44,000
$ 0
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 15%.
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 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?
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