Labeau Products, Ltd., of Perth, Australia, has $17,000 to invest. The company i
ID: 2498089 • Letter: L
Question
Labeau Products, Ltd., of Perth, Australia, has $17,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:
Click here to view Exhibit 11B-1 and Exhibit 11B-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. Use the appropriate table to determine the discount factor(s).)
Invest in
Project X Invest in
Project Y Investment required $ 17,000 $ 17,000 Annual cash inflows $ 6,000 Single cash inflow at the end of 6 years $ 40,000 Life of the project 6 years 6 years
Explanation / Answer
Statement showing Cash flows Project X Project Y Particulars Time PVf@17% Amount PV Amount PV Cash Outflows - 1.00 (17,000.00) (17,000.00) (17,000.00) (17,000.00) PV of Cash outflows (17,000.00) (17,000.00) Cash inflows 1.00 0.8547 6,000.00 5,128.21 - Cash inflows 2.00 0.7305 6,000.00 4,383.08 - Cash inflows 3.00 0.6244 6,000.00 3,746.22 - Cash inflows 4.00 0.5337 6,000.00 3,201.90 - Cash inflows 5.00 0.4561 6,000.00 2,736.67 - Cash inflows 6.00 0.3898 6,000.00 2,339.03 40,000.00 15,593.54 PV of Cash Inflows 21,535.11 15,593.54 NPV 4,535.11 (1,406.46) Company should accept Project X as it has positive NPV
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