FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Perit Industries has $125,000 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 $ 125,000 $0 $ 20,000 $ 8,000 6 years 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 B $0 $ 125,000 $ 64,000 $0 6 years The working capital needed for project B will be released the end of six years for investment elsewhere. Perit Industries' discount rate is 17%. 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 final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you recommend that the company accept?
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Transcribed Image Text:Perit Industries has $125,000 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 $ 125,000 $0 $ 20,000 $ 8,000 6 years 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 B $0 $ 125,000 $ 64,000 $0 6 years The working capital needed for project B will be released the end of six years for investment elsewhere. Perit Industries' discount rate is 17%. 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 final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you recommend that the company accept?
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