Labeau Products, Ltd., of Perth, Australia, has $35,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: Invest inProject XInvest inProject YInvestment required$35,000$35,000Annual cash inflows$12,000 Single cash inflow at the end of 6 years $90,000Life of the project6 years6 years The company’s discount rate is 18%. Required:1. Compute the net present value of Project X.2. Compute the net present value of Project Y.3. Which project would you recommend the company accept?

The Net Present is the excess of Present value of Cash Inflow over Present Value of Cash Outflow. It…

Answered: Life of the project 6 years 6 years…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Labeau Products, Ltd., of Perth, Australia, has $35,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:

	Invest in Project X	Invest in Project Y
Investment required	$	35,000	$	35,000
Annual cash inflows	$	12,000
Single cash inflow at the end of 6 years			$	90,000
Life of the project	6 years	6 years

The company’s discount rate is 18%.

Required:

1. Compute the net present value of Project X.

2. Compute the net present value of Project Y.

3. Which project would you recommend the company accept?

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