Question

Labeau Products, Ltd., of Perth, Australia, has $25,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: Invest Invest in in Investment required Annual cash inflows Single cash inflow at the end of 6 years Life of the project Project Project 25,000 $25,000 $60,000 8,000 years 6 years The company's discount rate is 16%. Click here to view Exhibit 13B-1 and Exhibit 138-2, 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? Complete this question by entering your answers in the tabs below Required 1 Required 2 Required 3 Compute the net present value of Project Х. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.)

Answer 1

Ans:

1)

Net present value = Present value of cash inflows - Present value of cash outflows

	1) Project X	2) Project Y
Present value of cash inflows	$ 29,480 (8,000*3.685)	$24,600 (60,000*0.410)
Present value of cash outflows i.e Investment	$ 25,000	$ 25,000
Net present value	$ 4,480	$ (400)

.3)Which project would you recommend that the company accept?

Ans: Project X. Because of positive NPV

Note:

1) For project X 6years Annuity factor @16% should be used

2) For project Y Present value factor @16% at the end of 6^th year should be used

3) please check Annuity table for present values