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Labeau Products, Ltd., 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, Ltd., 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 | ||
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The companys discount rate is 18%. |
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. |
Required: |
a. | Determine the net present values. (Any cash outflows should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s).) |
b. | Which alternative would you recommend that the company accept? | ||||
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