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
Investment required
$ 35,000
Annual cash inflows
$12,000
Life of the project
6 years
Invest in
Project Y
Investment required
$ 35,000
Single cash inflow at the end of 6 years
$90,000
Life of the project
6 years
The company’s discount rate is 18%.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.