Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses of
Question:
Perit Industries has $155,000 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 | $ | 155,000 | $ | 0 |
Working capital investment required | $ | 0 | $ | 155,000 |
Annual cash inflows | $ | 20,000 | $ | 55,000 |
Salvage value of equipment in six years | $ | 9,400 | $ | 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?
Statistics For Engineering And The Sciences
ISBN: 9781498728850
6th Edition
Authors: William M. Mendenhall, Terry L. Sincich