Labeau Products, Ltd., of Perth, Australia, has $28,000 to invest. The company i

Question

Labeau Products, Ltd., of Perth, Australia, has $28,000 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 $28,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:

Explanation / Answer

6

Since Project X Net present Value is Positive and high we will choose to invest in Project X

Now 1 2 3 4 5

6

PROJECT X Initial Investment - $28,000 Annual Cash Flow $8,000 $8,000 $8,000 $8,000 $8.000 $8,000 Total Cash Flows - $28,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 Discount Factor (16%) 1 0.862 0.743 0.641 0.552 0.476 0.410 Present Value - $28,000 $6,896 $5,944 $5,128 $4,416 $3,808 $3,280 Net present Value $ 1,472 PROJECT Y Initial Investment - $28,000 Cash flow $65,000 Total Cash Flows - $ 28,000 $65,000 discount Factor (16%) 1 0.410 Present Value - $ 28,000 $26,650 Net Present Value - $1,350

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