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r%25 paamweb%25 indexhtmr ow/connvect.htmisReg true&returnUtl-htt; Saved tomework of the funds. The alter Perit Industries has $155,000 to invest. The company is trying to decide betweern are Project A Project B $155,e se 155,eee Cost of equipment required Working capital investnent required Annual cash inflows salvage value of equipment in six years Life of the project 8,6e8$ 6 years 6 years P The working capitial needed for project B will be released at the end of six years for investment elsewhere. Perit Industries rate is 14%. Click here to view Exhibit 1381 and Extbi 138-2 to determine the appropriate discount factorfs) using tables Required: 1. Compute the net present value of Project A (Enter negative volues with a minus sign. Round your final answer to the n whole dollar emou 2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the whole doller emount.) 3. Which investment alternalive ( eithes) would you recommend that the company accept? value project A 2 Net presenl value project 8 Which investment atomative (f ether) would you oct B Prev lof6111 Next >Explanation / Answer
1. Net present value of project A
NPV of project A = ($53,865)
2. NPV of project B
NPV = $71,163
3. The company should accpet project B as it has a positive NPV
0 1 2 3 4 5 6 Annual cash flows $25,000 25000 25000 25000 25000 25000 Cost of equipment -$1,55,000 Salvage value $8,600 net cash flows -$1,55,000 $25,000 $25,000 $25,000 $25,000 $25,000 $33,600 discount factor $1 $0.877 $0.769 $0.675 $0.592 $0.519 $0.456 present value of cash flows -$1,55,000 $21,930 $19,237 $16,874 $14,802 $12,984 $15,308Related Questions
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