Labeau Products, Ltd., of Perth, Australia, has $14,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: (Ignore income taxes.) Invest in Project X Invest in Project Y Investment required $14,000 $14,000 Annual cash inflows $6,000 Single cash inflow at the end of 9 years $68,000 Life of the project 9 years 9 years The company's discount rate is 16%. To determine the appropriate discount factor(s) using tables, click here to viewExhibit 12B-1andExhibit 12B-2. Alternatively, if you calculate the discount factor(s) using a formula, round to three (3) decimal places before using the factor in the problem. Required: (1) Determine the net present value. (Round your answer to the nearest dollar amount. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Net Present Value Project X $ Project Y $ (2) Which investment would you recommend that the company accept?

Labeau Products, Ltd., of Perth, Australia, has $14,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: (Ignore income taxes.)

	Invest in Project X	Invest in Project Y
Investment required	$14,000	$14,000
Annual cash inflows	$6,000
Single cash inflow at the end of 9 years		$68,000
Life of the project	9 years	9 years

 

The company's discount rate is 16%.

To determine the appropriate discount factor(s) using tables, click here to view Exhibit 12B-1 and Exhibit 12B-2. Alternatively, if you calculate the discount factor(s) using a formula, round to three (3) decimal places before using the factor in the problem.

Required:

(1)	Determine the net present value. (Round your answer to the nearest dollar amount. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

	Net Present Value
Project X	$13,642
Project Y	$3,884

 

(2)	Which investment would you recommend that the company accept?
	Project X

Explanation:

(1)

Item	Year(s)	Amount of Cash Flows	16% Factor	Present Value of Cash Flows
Project X:
Investment	Now	$(14,000)	1.000	$(14,000)
Annual cash inflow	1-9	$6,000	4.607	27,642
Net present value				$13,642
Project Y:
Initial investment	Now	$(14,000)	1.000	$(14,000)
Single Cash inflow	9	$68,000	0.263	17,884
Net present value				$3,884

(2)

Project X should be selected since it has a higher net present value.