Question

Exercise 13-14 Comparison of Projects Using Net Present Value [LO13-2]

Labeau Products, Ltd., of Perth, Australia, has $21,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:

	Invest in Project X		Invest in Project Y
Investment required	$	21,000	$	21,000
Annual cash inflows	$	6,000
Single cash inflow at the end of 6 years			$	40,000
Life of the project	6 years		6 years

The company’s discount rate is 15%.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. Compute the net present value of Project X.

2. Compute the net present value of Project Y.

3. Which project would you recommend the company accept?

Exercise 13-14 Comparison of Projects Using Net Present Value [LO13-2]

Labeau Products, Ltd., of Perth, Australia, has $21,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:

	Invest in Project X		Invest in Project Y
Investment required	$	21,000	$	21,000
Annual cash inflows	$	6,000
Single cash inflow at the end of 6 years			$	40,000
Life of the project	6 years		6 years

The company’s discount rate is 15%.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. Compute the net present value of Project X.

2. Compute the net present value of Project Y.

3. Which project would you recommend the company accept?

Compute the net present value of Project X. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.)

Net present value

ompute the net present value of Project Y. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.)

Net present value

Which project would you recommend the company accept?

	Project Xradio button checked1 of 2 Project Yradio button unchecked2 of 2

Answer 1