Labeau Products, Ltd., of Perth, Australia, has $20,000 to invest. The company i
ID: 2475616 • Letter: L
Question
Labeau Products, Ltd., of Perth, Australia, has $20,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:
Determine the net present values. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)
Now: 1 2 3 4 5 6
Project X:
Annual Cash Inflows:
Total Cash Flows:
Discount Factor (16%):
Present Value:
Net Present Value:
Project Y:
Annual Cash Inflows:
Total Cash Flows:
Discount Factor (16%):
Present Value:
Net Present Value:
Labeau Products, Ltd., of Perth, Australia, has $20,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:
Explanation / Answer
Project X:
Year
Annual Cash Inflows
Discount Factor (16%)
Present Value
1
$ 6,000
0.8621
$ 5,172.41
2
$ 6,000
0.7432
$ 4,458.98
3
$ 6,000
0.6407
$ 3,843.95
4
$ 6,000
0.5523
$ 3,313.75
5
$ 6,000
0.4761
$ 2,856.68
6
$ 6,000
0.4104
$ 2,462.65
Present Value
$ 22,108.42
Less: Initial Investment
$ 20,000.00
Net Present Value
$ 2,108.42
Project Y:
Year
Annual Cash Inflows
Discount Factor (16%)
Present Value
1
0.8621
$ -
2
0.7432
$ -
3
0.6407
$ -
4
0.5523
$ -
5
0.4761
$ -
6
$ 40,000
0.4104
$ 16,417.69
Present Value
$ 16,417.69
Less: Initial Investment
$ 20,000.00
Net Present Value
$ (3,582.31)
Recommendation Project X is advisable as NPV is positive
Project X:
Year
Annual Cash Inflows
Discount Factor (16%)
Present Value
1
$ 6,000
0.8621
$ 5,172.41
2
$ 6,000
0.7432
$ 4,458.98
3
$ 6,000
0.6407
$ 3,843.95
4
$ 6,000
0.5523
$ 3,313.75
5
$ 6,000
0.4761
$ 2,856.68
6
$ 6,000
0.4104
$ 2,462.65
Present Value
$ 22,108.42
Less: Initial Investment
$ 20,000.00
Net Present Value
$ 2,108.42
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