1 answer

Labeau Products, Ltd., of Perth, Australia, has $25,000 to invest. The company is trying to decide...

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 companys 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.)
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.)

Answers

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 6th year should be used

3) please check Annuity table for present values

.

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