Question

Perit Industries has $130,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: 10 points Project A Project B Cost of equipment required $130,000 $ 0 Working capital investment $ 0 $130,000 required Annual cash inflows $ 21,000 $ 65,000 Salvage value of equipment in $ 8,100 $ 0 six years Life of the project 6 years 6 years eBook Hint The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 17%. Ask Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Print 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? References 1. Net present value project A 2. Net present value project B Which investment alternative (if either) 3. Would you recommend that the company accept?

Answer 1

Perit industries
Project A
	Year	Amount	17 % factor	PV
Initial Invstmt.	now	-130000	1	-130000
Annual NC inflow	1 to 6	21000	3.5892	75373.2
WC invested	now	0		0
WC released	6	0		0
SV	6	8100	0.3898	3157.38
NPV				-51469.42
Project B
	Year	Amount	17 % factor	PV
Initial Invstmt.	now	0	1	0
Annual NC inflow	1 to 6	65000	3.5892	233298
WC invested	now	-130000	1	-130000
WC released	6	130000	0.3898	50674
SV	6	0		0
NPV				153972
Part 3 - Project B should be accepted as it is yielding positive NPV.