Ch Perit Industries has $175,000 to invest. The company is trying to decide betw
ID: 2393914 • Letter: C
Question
Ch Perit Industries has $175,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Project A Project B $175, 000 0 $175,000 44, 000 Working capital investment required Annual cash inflows s 27,000 s 8, 800 Salvage value of equipment in six years Life of the project 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 138-1 and Exhibit 138-2, 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?Explanation / Answer
1) Net present value of project A = (27000*3.784+8800*0.432)-175000 = -69030
2) Net present value of project B = (44000*3.784+175000*.432)-175000 = 67096
3) Project B should be recommended