Exercise 14-14 (Algo) Comparison of Projects Using Net Present Value [LO14-2]

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	$ 4,000
Single cash inflow at the end of 6 years			$ 28,000
Life of the project	6	years	6	years

The companys discount rate is 16%.

Click here to view Exhibit 14B-1 and Exhibit 14B-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?