Perit Industries has $140,000 to invest. The company is trying to decide between
ID: 2527202 • Letter: P
Question
Perit Industries has $140,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:
The working capital needed for project B will be released at the end of six years for investment
elsewhere. Perit Industries’ discount rate is 17%.
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
Calculate net present value for each project.
rev: 12_08_2015_CS-35602, 08_18_2016_QC_CS-56848, 11_10_2016_QC_CS-66978, 11_26_2016_QC_CS-70603
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Perit Industries has $140,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:
Explanation / Answer
Statement showing Cash flows Project A Project B Particulars Time PVf 17% Amount PV Cash Outflows - 1.00 (140,000.00) (140,000.00) (140,000.00) (140,000.00) PV of Cash outflows = PVCO (140,000.00) (140,000.00) Cash inflows 1.00 0.8547 23,000.00 19,658.12 67,000.00 57,264.96 Cash inflows 2.00 0.7305 23,000.00 16,801.81 67,000.00 48,944.41 Cash inflows 3.00 0.6244 23,000.00 14,360.52 67,000.00 41,832.83 Cash inflows 4.00 0.5337 23,000.00 12,273.95 67,000.00 35,754.55 Cash inflows 5.00 0.4561 23,000.00 10,490.56 67,000.00 30,559.45 Cash inflows 6.00 0.3898 23,000.00 8,966.29 67,000.00 26,119.19 Cash inflows - Salvage value 6.00 0.3898 8,500.00 3,313.63 - Cash inflows - Recvery of WC 6.00 0.3898 - 140,000.00 54,577.40 PV of Cash Inflows =PVCI 85,864.88 295,052.78 NPV= PVCI - PVCO (54,135.12) 155,052.78 Project B should be accepted
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