Perit Industries has $220,000 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 $220,000 $0 Working capital investment required $0 $220,000 Annual cash inflows $31,000 $53,000 Salvage value of equipment in six years $9,200 $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 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 nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative value 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?
Perit Industries has $220,000 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 $220,000 $0 Working capital investment required $0 $220,000 Annual cash inflows $31,000 $53,000 Salvage value of equipment in six years $9,200 $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 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 nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative value 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Perit Industries has $220,000 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 | $220,000 | $0 |
| $0 | $220,000 | |
| Annual |
$31,000 | $53,000 |
| Salvage value of equipment in six years | $9,200 | $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 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Compute the
2. Compute the net present value of Project B. (Enter negative value 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? | ? |
Transcribed Image Text:EXHIBIT 12B-2 Present Value of an Annuity of $1 in Arrears; 1 -
Periods 4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
25%
1
0.962 0.952
0.943
0.935
0.926
0.917
0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.813 0.806 0.800
1.886
1.859
1.833
1.808
1.783
1.759
1.736 1.713
1.690 1.668 1.647
1.626 1.605 1.585 1.566 1.547
1.528 1.509 1.492 1.474 1.457 1.440
3
2.775
2.723
2.673
2.624
2.577
2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 2.074 2.042 2.011 1.981 1.952
4
3.630
3.546 3.465
3.387
3.312
3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2.448 2.404 2.362
4.452
4.329
4.212
4.100
3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.926 2.864 2.803 2.745 2.689
5.242
5.076
4.917
4.767
4.623
4.486 4.355 4.231
4.111
3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 3.245 3.167
3.092 3.020 2.951
7
6.002 5.786
5.582
5.389
5.206 5.033 4.868 4.712
4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3.161
8.
6.733
6.463
6.210
5.971
5.747
5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726 3.619 3.518 3.421 3.329
9.
7.435
7.108
6.802
6.515
6.247
5.995 5.759 5.537 5.328 5.132
4.946 4.772 4.607 4.451 4.303 4.163
4.031 3.905 3.786 3.673 3.566 3.463
10
8.111
7.722
7.360
7.024
6.710
6.418
6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 4.054 3.923 3.799 3.682 3.571
11
8.760
8.306
7.887
7.499
7.139
6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327 4.177
4.035 3.902 3.776 3.656
12
9.385 8.863
8.384
7.943
7.536
7.161
6.814 6.492 6.194 5.918 5.660 5.421 5.197
4.988 4.793 4.611
4.439 4.278 4.127
3.985 3.851 3.725
13
9.986 9.394 8.853 8.358 7.904
7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118
4.910 4.715 4.533 4.362 4.203 4.053 3.912 3.780
14
10.563
9.899
9.295
8.745
8.244
7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611
4.432 4.265 4.108 3.962 3.824
15
11.118
10.380 9.712
9.108
8.559
8.061 7.606 7191
6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 4.489 4.315 4.153 4.001 3.859
16
11.652 10.838 10.106
9.447
8.851
8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 4.536 4.357 4.189 4.033 3.887
17
12.166
11.274 10.477
9.763
9.122
8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775
4.576 4.391 4.219 4.059 3.910
18
12.659 11.690 10.828 10.059
9.372
8.756 8.201 7702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 4.608 4.419 4.243 4.080 3.928
19
13.134
12.085 11.158
10.336
9.604
8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 4.635 4.442 4.263 4.097 3.942
20
13.590 12.462 11.470 10.594
9.818
9.129
8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101
4.870 4.657 4.460 4.279 4.110
3.954
21
14.029 12.821 11.764 10.836 10.017
9.292 8.649 8.075 7.562 7.102
6.687 6.312 5.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292 4.121
3.963
22
14.451
13.163
12.042 11.061 10.201
9.442 8.772 8.176
7.645 7.170
6.743 6.359 6.011
5.696 5.410 5.149
4.909 4.690 4.488 4.302 4.130
3.970
23
14.857 13.489 12.303 11.272 10.371
9.580 8.883 8.266 7718
7.230 6.792 6.399 6.044 5.723 5.432 5.167
4.925 4.703 4.499 4.311
4.137
3.976
24
15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7.784
7.283 6.835 6.434 6.073 5.746 5.451 5.182 4.937 4.713
4.507 4.318 4.143
3.981
25
15.622 14.094 12.783 11.654 10.675
9.823 9.077 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 4.721 4.514 4.323 4.147
3.985
26
15.983 14.375 13.003 11.826 10.810
9.929 9.161 8.488 7.896 7.372 6.906 6.491 6.118
5.783 5.480 5.206 4.956 4.728 4.520 4.328 4.151
3.988
27
16.330 14.643 13.211
11.987 10.935 10.027 9.237 8.548 7.943 7.409 6.935 6.514 6.136 5.798 5.492 5.215 4.964 4.734
4.524 4.332 4.154
3.990
28
16.663 14.898 13.406 12.137
11.051
10.116
9.307 8.602 7.984 7.441
6.961 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.157
3.992
29
16.984 15.141
13.591 12.278 11.158
10.198
9.370 8.650 8.022 7.470 6.983 6.551 6.166
5.820 5.510 5.229 4.975 4.743 4.531 4.337 4.159
3.994
30
17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 8.055 7.496 7.003 6.566 6.177
5.829 5.517 5.235 4.979 4.746 4.534 4.339 4.160 3.995
40
19.793 17.159
15.046 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 4.760 4.544 4.347 4.166 3.999
Transcribed Image Text:EXHIBIT 12B-1 Present Value of $1;
Periods 4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20% 21%
22%
23%
24%
25%
1
0.962 0.952 0.943 0.935 0.926 0.917
0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.813
0.806 0.800
0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731
0.718
0.706 0.694 0.683 0.672 0.661 0.650 0.640
3
0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712
0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.564 0.551 0.537 0.524 0.512
4
0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516
0.499 0.482 0.467 0.451 0.437 0.423 0.410
0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437
0.419 0.402 0.386 0.370 0.355 0.341 0.328
6.
0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.319 0.303 0.289 0.275 0.262
7
0.760 0.711
0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314
0.296 0.279 0.263 0.249 0.235 0.222 0.210
0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.218 0.204 0.191
0.179 0.168
0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.180 0.167 0.155
0.144
0.134
10
0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191
0.176 0.162 0.149 0.137 0.126 0.116
0.107
11
0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195
0.178 0.162
0.148 0.135 0.123 0.112
0.103 0.094 0.086
12
0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187
0.168
0.152 0.137
0.124 0.112
0.102 0.092 0.083 0.076 0.069
13
0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116
0.104 0.093 0.084 0.075 0.068 0.061 0.055
14
0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181
0.160 0.141 0.125
0.111
0.099 0.088 0.078 0.069 0.062 0.055 0.049 0.044
15
0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.057 0.051 0.045 0.040 0.035
16
0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141
0.123 0.107 0.093 0.081 0.071
0.062 0.054 0.047 0.042 0.036 0.032 0.028
17
0.513
0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125
0.108 0.093 0.080 0.069 0.060 0.052 0.045 0.039 0.034 0.030 0.026 0.023
18
0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111
0.095 0.081 0.069 0.059 0.051
0.044 0.038 0.032 0.028 0.024 0.021 0.018
19
0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116
0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.027 0.023 0.020 0.017 0.014
20
0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.0073 0.061 0.051 0.043 0.037 0.031 0.026 0.022 0.019 0.016 0.014 0.012
21
0.439 0.359 0.294 0.242 0.199 0.164 0135 0.112 0.093 0.077 0.064 0.053 0.044 0.037 0.031
0.026 0.022 0.018 0.015 0.013 0.011 0.009
22
0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.101 0.083 0.068 0.056 0.046 0.038 0.032 0.026 0.022 0.018 0.015 0.013 0.011
0.009 0.007
23
0.406 0.326 0.262 0.211 0.170 0.138 0.112
0.091 0.074 0.060 0.049 0.040 0.033 0.027 0.022 0.018 0.015 0.012 0.010 0.009 0.007 0.006
24
0.390 0.310 0.247 0.197 0.158 0.126 0.102 0.082 0.066 0.053 0.043 0.035 0.028 0.023 0.019
0.015 0.013 0.010 0.008 0.007 0.006 0.005
25
0.375 0.295 0.233 0.184 0.146
0.116
0.092 0.074 0.059 0.047 0.038 0.030 0.024 0.020 0.016
0.013 0.010 0.009 0.007 0.006 0.005 0.004
26
0.361 0.281 0.220 0.172 0.135 0.106 0.084 0.066 0.053 0.042 0.033 0.026 0.021 0.017 0.014
0.011 0.009 0.007 0.006 0.005 0.004 0.003
27
0.347 0.268 0.207 0.161
0.125 0.098 0.076 0.060 0.047 0.037 0.029 0.023 0.018 0.014 0.011
0.009 0.007 0.006 0.005 0.004 0.003 0.002
28
0.333 0.255 0.196 0.150 0.116
0.090 0.069 0.054 0.042 0.033 0.026 0.020 0.016 0.012 0.010
0.008 0.006 0.005 0.004 0.003 0.002 0.002
29
0.321 0.243 0.185
0.141
0.107 0.082 0.063 0.048 0.037 0.029 0.022 0.017 0.014 0.011 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.002
30
0.308 0.231 0.174
0.131
0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.012 0.009 0.007
0.005 0.004 0.003 0.003 0.002 0.002 0.001
40
0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000
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