Question
Labeau Products, Ltd., of Perth, Australia, has $13,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:
Labeau Products, Ltd., of Perth, Australia, has $13,000 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 | $ | 13,000 | $ | 13,000 |
| Annual cash inflows | $ | 5,000 |
|
|
| Single cash inflow at the end of 6 years |
|
| $ | 30,000 |
| Life of the project | 6 years | 6 years | ||
The companys discount rate is 15%
Required:
a. Determine the net present values. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)
|
| Now | 1 | 2 | 3 | 4 | 5 | 6 |
| Project X: |
|
|
|
|
|
|
|
| Initial investment |
|
|
|
|
|
|
|
| Annual cash inflows |
|
|
|
|
|
|
|
| Total cash flows | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| Discount factor (15%) |
|
|
|
|
|
|
|
| Present value | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| Net present value | $0 |
|
|
|
|
|
|
| Project Y: |
|
|
|
|
|
|
|
| Initial investment |
|
|
|
|
|
|
|
| Single cash inflows |
|
|
|
|
|
|
|
| Total cash flows | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| Discount factor (15%) |
|
|
|
|
|
|
|
| Present value | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| Net present value | $0 |
|
|
|
|
|
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started