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 $0
Life of the project 6 years 6 years
The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 14%. (Ignore income taxes.)
To determine the appropriate discount factor(s) using tables, click here to view Exhibit 12B-1 (0.456) and Exhibit 12B-2 (3.889). Alternatively, if you calculate the discount factor(s) using a formula, round to three (3) decimal places before using the factor in the problem.
Required:
(a) Calculate net present value for each project. (Negative amount should be indicated by a minus sign. Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)
Net present value
Project A $ -14,683 (correct answer)
Project B $ ??
Answers: 2
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Perit Industries has $100,000 to invest. The company is trying to decide between two alternative use...
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