Labeau Products, Ltd., of Perth, Australia, has $24,000 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 $24,000 $24,000 Annual cash inflows $8,000 Single cash inflow at the end of 6 years $44,000 Life of the project 6 years 6 years The company’s discount rate is 14%. Attached are Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required: a. Determine the net present values. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.) Now 1 2 3 4 5 6 Project X: Initial investment Annual cash inflows Total cash flows Discount factor (14%) Present value Net present Value Project Y: Initial investment Single cash inflows Total cash flows Discount factor (14%) Present value Net present value b. Which alternative would you recommend that the company accept? Project X Project Y
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