Perit Industries has $100,000 to invest. The company is trying to decide between

Question

Perit Industries has $100,000 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 $100,000 $0 Working capital investment required $0 $100,000 Annual cash inflows $21,000 $15,750 Salvage value of equipment in six years $8,000 $0 Life of the project 6 years 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 14%. (Ignore income taxes.) Solve this problem using your financial calculator or Excel, NOT the tables in the chapter. Required: (a) Calculate net present value for each project. (Negative amount should be indicated by a minus sign. Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

Explanation / Answer

Perit Industries has $100,000 to invest.

It has two alternative

Prject B Should accepted

Project A Project B Cost of equipment required $100,000 0 Working capital investment required 0 $100,000 Annual cash inflows $21,000 $15,750 Salvage value of equipment in six years $8,000 0 Life of the project 6 years 6 years Perit Industries' discount rate is 14%. 14%. The working capital needed for project B will
be released at the end of six years

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