Pert industries has $155,000 to invest. The company is trying to decide between
ID: 2523762 • Letter: P
Question
Pert industries has $155,000 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 required13311$155,000 $155,000$ Annual cash inflows Salvage value of equipment in six years 1111111 Lafe of the project 20,00055,000 9,400 6 years6 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%. cick here to view Exhibit 138-1 and Exhibit 138.32, to determine the appropriate discount foctoris) using tables Required: Compute the net present value of Project A (Enter negative values with a minus sign. whole dollar amount Round your final answer to the nearest 2. Compute the net present value of Project B. Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount) 3. Which investment alternative (if elthe) would you recommend that the company accept? 1.Net present value project A 2. Net present value project B Which investment alternative (if either) would you recommend that the company accept?Explanation / Answer
PVAF of 14% for 6 years = 3.888
PVAF of 14% in year 6 = 0.456
1.
Present value of cash Inflows = Annual cash flows + Salvage value in year 6
= (20,000 * 3.888) + (9,400 * 0.456)
= 77,760 + 4,286
= 82,046
Prseent value of cash outflows = 155,000
Net present value = Present value of cash inflows - Present value of cash outflows
= 82,046 - 155,000
= (72,954)
2.
Present value of cash inflows = Annual cash inflows + Working capital release in year 6
= (55,000 * 3.888) + (155,000 * 0.456)
= 213,840 + 70,680
= 284,520
Present value of cash outflows = 155,000
Net present value = Present value of cash inflows - Present value of cash outflows
= 284,520 - 155,000
= 129,520
3.
Project B is recommended.
Net present value of Project A (72,954) Net present value of Project B 129,520 Which investment alternative (if either) would you recommend that the company accept ? Project BRelated Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.