Labeau Products, Ltd., of Perth, Australia, has $13,000 to invest. The company i

Question

Labeau Products, Ltd., of Perth, Australia, has $13,000 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 $13,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:

Explanation / Answer

A)

B)

Project X provides possitive NPV so Project X should be selected

Now Year1 Year2 Year3 Year4 Year5 Year6 Project X : Initial investment -13000 0 0 0 0 0 0 Annual Cash inflow 0 5000 5000 5000 5000 5000 5000 Total Cash Flow -13000 5000 5000 5000 5000 5000 5000 Discount factor (@15%) 1 0.87 0.756 0.658 0.572 0.497 0.432 Present Value -13000 4350 3780 3290 2860 2485 2160 Net Present Value 5925

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