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Labeau Products, Ltd., of Perth, Australia, has $21,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:
| Labeau Products, Ltd., of Perth, Australia, has $21,000 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 | $ | 21,000 | $ | 21,000 |
| Annual cash inflows | $ | 6,000 | ||
| Single cash inflow at the end of 6 years | $ | 40,000 | ||
| Life of the project | 6 years | 6 years | ||
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| The companys discount rate is 15%. |
| Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. |
| a. | Determine the net present values.
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