Business, 27.10.2020 17:40 carswellml

Perit Industries has $135,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:

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Answer from: allisonpierce1787

Continuation of the question

Project A Project B

Cost of equipment required $135,000 $0

Working capital investment required $0 $135,000

Annual cash inflows $22,000 $66,000

Salvage value of equipment in six years $8,400 $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 17%.

Required:

a. Calculate net present value for each project.

b. Which investment alternative (if either) would you recommend that the company accept?

Note: The discount factor use are derived from Exhibit 11B-1 and Exhibit 11B-2

a. Net Present vale of Project A

Particulars Amount D. Factor Present cash flow

Annual cash inflow 1-6yrs $22,000 3.58918 $78,962.06

Salvage value for 6th years $8,400 0.38984 $3,274.64

Total cash inflows $82,236.71

Less: Initial investment $135,000 1.000 $135,000

Net present value -$52,763.29

Net Present vale of Project A

Particulars Amount D. Factor Present cash flow

Annual cash inflow 1-6yrs $66,000 3.58918 $236,886.19

Working capial for 6th years $135,000 0.38984 $52,628.21

Total cash inflow $289,514.40

Less working capital $135,000 1.000 $135,000

Net present value $154,514.40

b. Project B alternative should be chosen because it have positive NPV

Answer from: Quest

The correct answer is "b) net income overstated, assets unaffected, liabilities understated, and owner's equity overstated."

Answer from: Quest

Took the words right out of my fingers

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Perit Industries has $135,000 to invest. The company is trying to decide between two alternative use...

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