Perit Industries has $130,000 to invest. The company is trying to decide between

ID: 2524726 • Letter: P

Question

Perit Industries has $130,000 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.

17% for 6 years= 3.589

years 1-6= 14.181

Perit Industries has $130,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:

Answer:- The net present value of project A is -$51472.

The net present value of project A is $153985.

Explanation:-

Net present value of A project = Present value of cash inflows – Total outflows

={($21000*3.589)+($8100*.390) - $130000}

=($75369+$3159) - $130000

= $78528-$130000

= -$51472

Net present value of B project = Present value of cash inflows – Total outflows

={($65000*3.589)+($130000*.390) - $130000}

=($233285+$50700) - $130000

= $283985-$130000

= $153985

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