Perit Industries has $130,000 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 $ 130,000 Project B $ 0 $ 0 $ 130,000 $ 22,000 $ $ 8,300 33,000 $ 0 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 14%. 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 recommend that the company accept? you Project B

Perit Industries has $130,000 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 $ 130,000 Project B $ 0 $ 0 $ 130,000 $ 22,000 $ $ 8,300 33,000 $ 0 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 14%. 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 recommend that the company accept? you Project B

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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