Question

Perit Industries has $135,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Project B $135,000 Cost of equipment required Working capital investment required Annual cash inflowS Salvage value of equipment in six years Life of the project 0 $135,000 25,000 63,000 $ 9,800 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 17%. 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? 1. Net present value project A 2. Net present value project B 3. Which investment alternative if either) would you recommend that the company accept?

Answer 1

	use discount factor at 17% for 6 years
1)	project A
	initial investment					-135000
	annual cash flow		(25,000*3.589)=			89725
	Salvage value		(9,800*.390)=			3822
	present value					-41453	answer
2)	project B
	initial investment					-135000
	annual cash flow		(63,000*3.589)=			226107
	working capital realseased		(135000*.390)			52650
	present value					143757	answer
	(use Discount factors as given in your question to get exact answer)
3)	project B