Perit Industries has $100,000 to invest. The company is tryingto decide between two alternative uses of the funds. Thealternatives are: Project A Project B Cost of equipment required$100,000 $0 Working capital investment required $0 $100,000 Annualcash inflows $21,000 $15,750 Salvage value of equipment in sixyears $8,000 $0 Life of the project 6 years 6 years The workingcapital needed for project B will be released at the end of sixyears for investment elsewhere. Perit Industries' discount rate is14%. (Ignore income taxes.) Solve this problem using your financialcalculator or Excel, NOT the tables in the chapter. Required: (a)Calculate net present value for each project. (Negative amountshould be indicated by a minus sign. Round your answer to thenearest dollar amount. Omit the "$" sign in your response.)
Perit Industries has $100,000 to invest. The company is tryingto decide between two alternative uses of the funds. Thealternatives are: Project A Project B Cost of equipment required$100,000 $0 Working capital investment required $0 $100,000 Annualcash inflows $21,000 $15,750 Salvage value of equipment in sixyears $8,000 $0 Life of the project 6 years 6 years The workingcapital needed for project B will be released at the end of sixyears for investment elsewhere. Perit Industries' discount rate is14%. (Ignore income taxes.) Solve this problem using your financialcalculator or Excel, NOT the tables in the chapter. Required: (a)Calculate net present value for each project. (Negative amountshould be indicated by a minus sign. Round your answer to thenearest dollar amount. Omit the "$" sign in your response.)
Related questions
Perit Industries has $130,000 to invest. The company is tryingto decide between two alternative uses of the funds. Thealternatives are:
| Project A | Project B | |||
| Cost of equipment required | $ | 130,000 | $ | 0 |
| Working capital investmentrequired | $ | 0 | $ | 130,000 |
| Annual cash inflows | $ | 21,000 | $ | 65,000 |
| Salvage value of equipment insix years | $ | 8,100 | $ | 0 |
| Life of the project | 6 years | 6 years | ||
The working capital needed for project B will be released at theend of six years for investment elsewhere. Perit Industriesâdiscount rate is 17%.
Required:
1. Compute the net present value of Project A. (Enternegative values with a minus sign. Round your final answer to thenearest whole dollar amount.)
2. Compute the net present value of Project B. (Enternegative values with a minus sign. Round your final answer to thenearest whole dollar amount.)
3. Which investment alternative (if either) would you recommendthat the company accept?
