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In: Accounting
Exercise 11-11 Comparison of Projects Using Net Present Value [LO11-2] Labeau Products, Ltd., of Perth, Australia,...
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: |
|
Invest in Project X |
Invest in Project Y |
|||
| Investment required | $ | 28,000 | $ | 28,000 |
| Annual cash inflows | $ | 8,000 | ||
| Single cash inflow at the end of 6 years | $ | 65,000 | ||
| Life of the project | 6 years | 6 years | ||
| The company’s discount rate is 16%. |
|
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. |
| Required: |
| a. |
Determine the net present values. |
| b. | Which alternative would you recommend that the company accept? | ||||
|
Solutions
Expert Solution
| 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 | ||||||
ekkarill92 answered 2 years agoRelated Solutions
Exercise 13-14 Comparison of Projects Using Net Present Value [LO13-2] Labeau Products, Ltd., of Perth, Australia,...
Exercise 13-14 Comparison of Projects Using Net Present Value
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invest. The company is trying to decide between two alternative
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Invest in
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Invest in
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Investment required
$
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$
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Annual cash inflows
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Single cash inflow at the end of 6 years
$
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Life of the project
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Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine
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Required:
1.
Determine the net present value of the investment...
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Initial investment
(CF
0CF0)
negative 1 comma 143 comma 000−1,143,000
Year
(t)
Cash inflows
(CF Subscript
tCFt)
1
$81,000
2
$138,000
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$193,000
4
$258,000
5
$311,000
6
$377,000
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$45,000
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The net present value (NPV) of the project is _____$ (Round
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revenues...
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Project B
Project C
Project D
Project E
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$26,000
$500,000
$170,000
$950,000
$80,000
Year
Cash inflows
1
$4,000
$100,000
$20,000
$230,000
$ 0
2
4,000
120,000
19,000
230,000
0
3
4,000
140,000
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0
4
4,000
160,000
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230,000
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5
4,000...
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Project B
Project C
Project D
Project E
Initial investment
$26,000
$500,000
$170,000
$950,000
$80,000
Year
Cash inflows
1
$4,000
$100,000
$20,000
$230,000
$ 0
2
4,000
120,000
19,000
230,000
0
3
4,000
140,000
18,000
230,000
0
4
4,000
160,000
17,000
230,000
20,000
5
4,000...
Labeau Products, Ltd., of Perth, Australia, has $12,000 to invest. The company is trying to decide...
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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
$
12,000
$
12,000
Annual cash inflows
$
4,000
Single cash inflow at the end of 6 years
$
28,000
Life of the project
6 years
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The company’s discount rate is 16%.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine...
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Invest in
Project X
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Investment required
$
26,000
$
26,000
Annual cash inflows
$
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Single cash inflow at the end of 6 years
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Life of the project
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Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine...
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0
1
2
3
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Project A $ million
Project B $ million
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