EXERCISE 14-14 Comparison of Projects Using Net Present ValueLO14-2

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:

The company's discount rate is 18%.

Investment required

Annual cash inflows

Single cash inflow at the end of 6 years

Life of the project

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?

Invest in Invest in

Project X

Project Y

$35,000

$35,000

$12,000

6 years

$90,000

6 years