Question
Labeau Products, Limited, of Perth, Australia, has $35,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:
Labeau Products, Limited, of Perth, Australia, has $35,000 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 | $ 35,000 | $ 35,000 | ||
| Annual cash inflows | $ 12,000 | |||
| Single cash inflow at the end of 6 years | $ 90,000 | |||
| Life of the project | 6 | years | 6 | years |
The companys discount rate is 18%.
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?
Step by Step Solution
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Step: 1
To determine which project Labeau Products should invest in well compute the net present value NPV f...
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Intermediate Accounting
Authors: kieso, weygandt and warfield.
IFRS Edition
978-1118443965, 1118800532, 9781118800539, 978-0470873991
