Labeau Products, Ltd., of Perth, Australia, has $35,000 to invest. The company i

Question

Labeau Products, Ltd., of Perth, Australia, has $35,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Determine the net present values. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)

Labeau Products, Ltd., of Perth, Australia, has $35,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:

Explanation / Answer

a)   Net Present Value:

                                                                                  Project X                 Project Y

Annual Cash flow                                                     12,000

PV of annuity @ 18 % for 6 years                             3.4976

Cash flow in end of Year 6                               90,000

PV factor @ 18 % for end of year 6      .370                                                       

Present value of cash inflows                             41,971 33,300

Initial Investment    - 35,000       - 35,000

Net Present Value    6,971    -1,700

b) Project X should be accepted. It has a positive NPV

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