80.2K
Verified Solution
Link Copied!
Perit Industries has $100,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:
| | Project A | Project B |
| Cost of equipment required | $ | 100,000 | $ | 0 |
| Working capital investment required | $ | 0 | $ | 100,000 |
| Annual cash inflows | $ | 21,000 | $ | 16,000 |
| Salvage value of equipment in six years | $ | 8,000 | $ | 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 14%.
Click here to view Exhibit 13B-1 and Exhibit 13B-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?
Answer & Explanation
Solved by verified expert
