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 companys discount rate is 18%.

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?