Exercise 12-14 Comparison of Projects Using Net Present Value [LO12-2]

Labeau Products, Ltd., of Perth, Australia, has $20,000 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$20,000$20,000 Annual cash inflows$6,000Single cash inflow at the end of 6 years$40,000 Life of the project 6 years 6 years

The company's discount rate is 15%.

Click here to viewExhibit 12B-1andExhibit 12B-2, to determine the appropriate discount factor(s) using tables.

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?