Exercise 11-11 Comparison of Projects Using Net Present Value [LO11-2]

Labeau Products, Ltd., of Perth, Australia, has $11,000 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	$	11,000	$	11,000
Annual cash inflows	$	4,000
Single cash inflow at the end of 6 years			$	25,000
Life of the project	6 years		6 years

The companys discount rate is 15%.

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. (Any cash outflows should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s).)

b.

Which alternative would you recommend that the company accept?

	Project X
	Project Y