Check my work 5 Perit Industries has $120,000 to invest. The company is trying t
ID: 2536473 • Letter: C
Question
Check my work 5 Perit Industries has $120,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: 10 points Project A Project B $120,000 Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project 0 $120,000 21,000 30,000 $ 8,200 6 years eBook Hint Print References 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 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?Explanation / Answer
Project A: Year(s) Amount of Cash Inflows 15% factor Present Value of Cash Flows Cost of the equipment Now -120000 1 -120000 Annual cash inflows 1-6 21000 3.784 79464 Salvage value of the equipment 6 8200 0.432 3542 Net present value -36994 Project B: Working capital investment Now -120000 1 -120000 Annual cash inflows 1-6 30000 3.784 113520 Working capital released 6 120000 0.432 51840 Net present value 45360 3 Project B should be accepted