Question

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

Labeau Products, Ltd., of Perth, Australia, has $35,000 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	$	35,000	$	35,000
Annual cash inflows	$	12,000
Single cash inflow at the end of 6 years			$	90,000
Life of the project	6 years		6 years

  

The company’s discount rate is 18%.

  

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

  

Required:

a.	Determine the net present values.

     

b.

Which alternative would you recommend that the company accept?

	Project X
	Project Y

Answer 1