Question: Exercise 11-11 Comparison of Projects Using Net Present Value [LO11-2] Labeau Products, Ltd., of Perth, Australia, has $12,000 to invest. The company is trying to
Exercise 11-11 Comparison of Projects Using Net Present Value [LO11-2]
| 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 | ||
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| The companys discount rate is 16%. |
| Click here to view Exhibit 11B-1 and Exhibit 11B-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? | ||||
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