Labeau Products, Limited, of Perth, Australia, has $16,000 to invest. The company is trying to...
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Labeau Products, Limited, of Perth, Australia, has $16,000 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 | $ 16,000 | $ 16,000 | ||
| Annual cash inflows | $ 5,000 | |||
| Single cash inflow at the end of 6 years | $ 35,000 | |||
| Life of the project | 6 | years | 6 | years |
The companys discount rate is 15%.
Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables.
Required:
- Compute the net present value of Project X.
- Compute the net present value of Project Y.
- Which project would you recommend the company accept?
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