Question

Labeau Products, Ltd., of Perth, Australia, has $25,000 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	$	25,000	$	25,000
Annual cash inflows	$	8,000
Single cash inflow at the end of 6 years			$	60,000
Life of the project	6 years		6 years

The company’s discount rate is 18%.

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.

Answer 1