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iPad 2:47 PM * 99% ezto.mheducation.com Save & Exit | | Submit Question 5 (of 5) 5 value: 5.00 points Perit Industries has $190,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $190,000 SO $28,000 $8,900 6 years Project B $0 $190,000 $48,000 $0 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 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables Required: a. Calculate net present value for each project. Project A Project B Net present value b. Which investment altemative (if either) would you recommend that the company accept? O Project B Project A References eBook & R esources Expanded table Difficulty: 1 Easy Learning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method

Explanation / Answer

Project A: Year(s) Amount of Cash Flows PV factor Present Value of Cash Flows Cost of the equipment Now -190000 1 -190000 Annual cash inflows 1-6 28000 3.784 105952 Salvage value of the equipment 6 8900 0.432 3845 Net present value -80203 Project B: Year(s) Amount of Cash Flows PV factor Present Value of Cash Flows Working capital investment Now -190000 1 -190000 Annual cash inflows 1-6 48000 3.784 181632 Working capital released 6 190000 0.432 82080 Net present value 73712 b Project B should be accepted

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