Perit Industries has $135,000 to invest in one of the following two projects:Project ACost of equipment requiredAnnual cash inflows$ 135,000Project B$ 0Working capital investment required$ 0kSalvage value of equipment in six yearsLife of the project$ 22,000$ 8,400$ 135,000$66,000$ 06 yearstences6 yearsThe working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discountrate is 17%.Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.Required:1. Compute the net present value of Project A.Note: Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.2. Compute the net present value of Project B.Note: Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.3. Which investment alternative (if either) would you recommend that the company accept?1. Net present value project A2. Net present value project B3. Which investment alternative (if either) would yourecommend that the company accept?Project B

Step 1:1)We have to calculate the net present value of the project A.Calculations are shown…

Answered: Perit Industries has $135,000 to invest…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 4P

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Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Gallant Sports s considering the purchase of a new rock-climbing facility. The company estimates that the construction will require an initial outlay of $350,000. Other cash flows are estimated as follows: Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%?
Lambert Manufacturing has P100,000 to invest in either Project A or Project B. The following data are available on these projects: Project A P100,000 Cost of equipment needed now Working capital investment needed now Annual cash operating inflows. Salvage value of equipment in 6 years Project B P60,000 P40,000 P35,000 P40,000 P10,000 Both projects will have a useful life of six (6) years. At the end of six (6) years, the working capital investment will be released for use elsewhere. Lambert's required rate of return is 14%. The company uses the total cost approach to evaluating alternatives. Required: 1. Compute the NPV of each project. Using this method of appraisal, which project must be chosen? Explain your answer. 2. Compute the Profitability Index of each project. Using this method of appraisal, which project must be chosen? Explain your answer. 3. Compute the IRR of each project. Using this method of appraisal, which project must be chosen? Explain your answer.

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