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Labeau Products, Limited, of Perth, Australia, has $34,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:
Labeau Products, Limited, of Perth, Australia, has $34,000 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 | $ 34,000 | $ 34,000 | ||
Annual cash inflows | $ 9,000 | |||
Single cash inflow at the end of 6 years | $ 60,000 | |||
Life of the project | 6 | years | 6 | years |
The companys discount rate is 14%.
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?
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