Exercise 12-7 Net Present Value Analysis of Two Alternatives [LO12-2]Perit Industries has $135,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternativesare:Cost of equipment requiredWorking capital investment requiredAnnual cash inflowsProject A Project B$135,000 $0$0 $135,000$ 22,000 $ 66,000$ 8,400 $06 years6 yearsSalvage value of equipment in six yearsLife of the projectThe working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discountrate is 17%.Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.Required:1. Compute the net present value of Project A. (Enter negative value with a minus sign. Round your final answer to the nearestwhole dollar amount.)2. Compute the net present value of Project B. (Enter negative value with a minus sign. Round your final answer to the nearestwhole dollar amount.)3. Which investment alternative (if either) would you recommend that the company accept?1. Net present value project A$ (52,763)2.Net present value project B3.Which investment alternative (if either) would yourecommend that the company accept?Project B

NPV= Present value of cashinflows- Present value of cashoutflows.

Answered: .Net present value project A .Net…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Exercise 14-7 (Algo) Net Present Value Analysis of Two Alternatives [LO14-2] Perit Industries has $115,000 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 $ 115,000 $ 0 Working capital investment required $ 0 $ 115,000 Annual cash inflows $ 21,000 $ 69,000 Salvage value of equipment in six years $ 8,700 $ 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 15%. Click here to view Exhibit 14B-1 and Exhibit 14B-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…
Exercise 12-7 (Algo) Net Present Value Analysis of Two Alternatives [LO12-2] Perit Industries has $200,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Working capital investment required. Annual cash inflows Salvage value of equipment in six years Life of the project 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? Project A $ 200,000 $0 $ 29,000 $ 9,000
Exercise 14-7 (Algo) Net Present Value Analysis of Two Alternatives [LO14-2] Perit Industries has $210,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 210,000 $0 $ 30,000 $ 9,100 6 years Project B $0 $ 210,000 $ 52,000 $0 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 15%. Click here to view Exhibit 148-1 and Exhibit 148-2, to determine the appropriate discount factor(s) using tables. Required: . 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…
Problem 12-10 Payback and net present value [LO12-3, 12-4] X-treme Vitamin Company is considering two investments, both of which cost $20,000. The cash flows are as follows: Year Project A Project B 1 $ 23,000 $ 20,000 2 10,000 9,000 3 10,000 15,000 Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a-1. Calculate the payback period for Project A and Project B. (Round your answers to 2 decimal places.) project A 0.87 years project B 1 year b-1. Calculate the net present value for Project A and Project B. Assume a cost of capital of 8 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places.)
Exercise 14-7 (Algo) Net Present Value Analysis of Two Alternatives [LO14-2) Perit Industries has $165,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 305,000 50 $ 21,000 1. Nat present valus project A 2. Net present value project B 3. Which investment alternative of either) would you recommend that the company accept? Project 8 $ 165,000 $ 56,000 years The working capital needed for project will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 14%. Click here to view Exhibit 148-1 and Exhibit 148-2, to determine the appropriate discount factors) 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.…
Question 16 of 30 View Policies Current Attempt in Progress -/0.35 ⠀ Crane Crafts Corp. management is evaluating two independent capital projects that will each cost the company $200,000. The two projects will provide the following cash flows: Year Project A Project B 1 $66,750 $26,450 2 93,450 66,125 3 34,235 143,250 4 151,655 98,110 (a1) What is the payback period of both projects? (Round answers to 2 decimal places, e.g. 15.25.) The Payback of Project A is years and Project B is eTextbook and Media Save for Later Using multiple attempts will impact your score. 20% score reduction after attempt 2 years. Attempts: 0 of 3 used Submit Answer (a2) The parts of this question must be completed in order. This part will be available when you complete the part above. Search ♡
Question 4 Bell Manufacturing is considering investing in a new project. Two projects have been put forward for consideration. The following information has been gathered for each. Project A Project B Initial investment £500,000 £600,000 Life of project 4 years 4 years Estimated annual cash flows: Year Project A Project B Cash flow per year 1 160,000 180,000 170,000 190,000 3 110,000 100,000 4 90,000 150,000 Resale value of project 30,000 40,000 The company estimates its cost of capital at 12% and uses straight line depreciation method for its plant and machinery. Required a) Appraise the two Project using the following methods of investment appraisal: i. Payback period ii. Accounting Rate of Return iii. Net present value b) Discuss your findings and advise the company which project they should invest in if the projects are mutually exclusive (that is only one project may be undertaken).
Exercise 12-14 (Algo) Comparison of Projects Using Net Present Value [LO12-2] Labeau Products, Limited, of Perth, Australia, has $15,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: Invest in Project X Invest in Project Y Investment required $ 15,000 $ 15,000 Annual cash inflows $ 5,000 Single cash inflow at the end of 6 years $ 36,000 Life of the project 6 years 6 years The company’s discount rate is 16%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project X. 2. Compute the net present value of Project Y. 3. Which project would you recommend the company accept?
Problem 12-15 (Algo) Net present value method [LO12-4] The Horizon Company will invest $67,000 in a temporary project that will generate the following cash inflows for the next three years. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 3 Cash Flow $ 21,000 34,000 36,000 The firm will also be required to spend $18,000 to close down the project at the end of the three years. a. Compute the net present value if the cost of capital is 9 percent. Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places. Net present value b. Should the investment be undertaken? No Yes
Saved Exercise 12-12 Uncertain Cash Flows (LO12-4] The Cambro Foundation, a nonprofit organization, is planning to invest $104,950 in a project that will last for three years. The project will produce net cash inflows as follows: Year 1 $30,000 Year 2 $40,000 Year 3 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: Assuming that the project will yield exactly a 12% rate of return, what is the expected net cash inflow for Year 3? Net cash inflow Graw 10 tv MacBook Air 80 88 DII DD F2 F3 F4 FS F6 FB F9 F11 23 2$ % ) + 1 3 4 6 7 Q W E T Y U { A D F H J C. V B M .. .. * 00
Question 3 Simpson Ltd is an engineering company and is currently considering whether to accept one of the two mutually exclusive investment projects, namely project Bart and project Liza. The following are the Net Cash Flows of these two projects: Year Initial Investment 123 4 5 6 Project Bart £ (525,000) 260,000 (50,000) 302,000 240,000 194,000 125,000 Project Lisa £ (330,000) 80,000 162,000 180,000 145,000 81,000 a) Calculate the payback period for both projects and suggest which project (if any) is worthwhile if it is the company's policy not to take on a project with a payback period longer than 3 years. b) Briefly discuss the main reasons why, despite its numerous drawbacks, payback still remains a widely used technique for investment appraisal. c) Calculate the Net Present Value (NPV) for project Bart and project Lisa and recommend which project the company should invest in (if any), giving your reasons. The cost of capital 10%. d) You are told that at a cost of capital of 28%,…
QUESTION 8 The INTERNAL RATE OF RETURN for the project shown above is: O 3.92% O 13.25 O 15.17% 9 21.22% O No IRR QUESTION 9

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.Net present value project A .Net present value project B Which investment alternative (if either) would you recommend that the company accept? $ Project B (52,763)