Exercise 13-14 Comparison of Projects Using Net Present Value[LO13-2]
Labeau Products, Ltd., of Perth, Australia, has $18,000 toinvest. The company is trying to decide between two alternativeuses for the funds as follows:
| Invest in
Project X | Invest in
Project Y |
| Investment required | $ | 18,000 | $ | 18,000 |
| Annual cash inflows | $ | 7,000 | | |
| Single cash inflow at the end of 6 years | | | $ | 41,000 |
| Life of the project | 6 years | 6 years |
|
The company’s discount rate is 17%.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determinethe 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?
