Exercise 11-11 Comparison of Projects Using Net Present Value [LO11-2] Labeau Pr
ID: 2528476 • Letter: E
Question
Exercise 11-11 Comparison of Projects Using Net Present Value [LO11-2]
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 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
Determine the net present values.
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
Statement showing Cash flows Project X Project Y Particulars Time PVf 16% Amount PV Cash Outflows - 1.00 (28,000.00) (28,000.00) (28,000.00) (28,000.00) PV of Cash outflows = PVCO (28,000.00) (28,000.00) Cash inflows 1.00 0.8621 8,000.00 6,896.55 - Cash inflows 2.00 0.7432 8,000.00 5,945.30 - Cash inflows 3.00 0.6407 8,000.00 5,125.26 - Cash inflows 4.00 0.5523 8,000.00 4,418.33 - Cash inflows 5.00 0.4761 8,000.00 3,808.90 - Cash inflows 6.00 0.4104 8,000.00 3,283.54 65,000.00 26,678.75 PV of Cash Inflows =PVCI 29,477.89 26,678.75 NPV= PVCI - PVCO 1,477.89 (1,321.25) b Project X since it has positive NPV
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