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

Question

Perit Industries has $100,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries'discount rate is 14%. (Ignore income taxes.) Solve this problem using your financial calculator or Excel, NOT the tables in the chapter. Required: Calculate net present value for each project. (Negative amount should be indicated by a minus sign. Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

Explanation / Answer

Project B has the positive Present Value Inflows, so the Project B can be acceptable

Working Notes :-

PV factor @ 14% =

Project A Year Inflows PV@ 14% Dis. Cash Flows Year 0 -100000 1 -100000 Year 1 21000 0.877 18417 Year 2 21000 0.769 16149 Year 3 21000 0.675 14175 Year 4 21000 0.592 12432 Year 5 21000 0.519 10899 Year 6 29000 0.456 13224 PV of Project A -14704 Project B Year Inflows PV @ 14% Dis. Cash Flows Year 0 -100000 1 -100000 Year 1 15750 0.877 13813 Year 2 15750 0.769 12112 Year 3 15750 0.675 10631 Year 4 15750 0.592 9324 Year 5 15750 0.519 8174 Year 6 115750 0.456 52782 PV of Project B 6836

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