Labeau Products, Limited, of Perth, Australia, has $12,000 to invest. The company is trying to decide between
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Question:
Labeau Products, Limited, 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 | $ 5,000 | |||
Single cash inflow at the end of 6 years | $ 30,000 | |||
Life of the project | 6 | years | 6 | years |
The companys 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. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.)
2. Compute the net present value of Project Y. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.)
3. Which project would you recommend the company accept?
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