Question
Labeau Products, Ltd., of Perth, Australia, has $12,000 to invest. The company is trying to decide...
Labeau Products, Ltd., of Perth, Australia, has $12,000 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 | $ | 12,000 | $ | 12,000 |
| Annual cash inflows | $ | 4,000 | ||
| Single cash inflow at the end of 6 years | $ | 28,000 | ||
| Life of the project | 6 years | 6 years | ||
The company’s discount rate is 16%.
Click here to view Exhibit 12B-1 and Exhibit 12B-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?
Homework Answers
Answer #1
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