Question

Labeau Products, Ltd., of Perth, Australia, has $26,000 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 $ 26,000 $ 26,000 Annual cash inflows $ 8,000 Single cash inflow at the end of 6 years $ 50,000 Life of the project 6 years 6 years The company’s discount rate is 12%. 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).)

Answer 1

Answer:

Project X NPV = $6,891.26  

Project Y NPV = ($668.44)    

Explanation:

Project X  

Yr    Cashflow    PV factor at 12%   Present value

0 ($26,000) 1.0000           ($26,000.00)

1         8,000.00        0.8929           $7,142.86  

2        8,000.00        0.7972           $6,377.55  

3        8,000.00        0.7118             $5,694.24  

4         8,000.00       0.6355           $5,084.14  

5         8,000.00       0.5674           $4,539.41  

6         8,000.00       0.5066           $4,053.05  

                              NPV                   $6,891.26  

   

Project Y  

Yr Cashflow PV factor at 12% Present value

0              ($26,000)        1.0000         ($26,000.00)

1                    -                    0.8929          $0.00  

2                   -                    0.7972           $0.00  

3                    -                    0.7118            $0.00  

4                   -                    0.6355           $0.00  

5                    -                    0.5674          $0.00  

6              50,000.00        0.5066          $25,331.56  

                                               NPV           ($668.44)