Simms Manufacturing is considering two alternative investment proposals with the
ID: 2331576 • Letter: S
Question
Simms Manufacturing is considering two alternative investment proposals with the following data:
Proposal X
Proposal Y
Investment
$620,000
$400,000
Useful life
8 years
8 years
Estimated annual net cash inflows for 8 years
$130,000
$80,000
Residual value
$0
$0
Depreciation method
Straight-line
Straight-line
Discount rate
9%
10%
What is the net present value of Proposal X, taking into consideration the initial outlay and the subsequent
cash inflows?
Present Value of an Annuity of $1
5%
6%
7%
8%
9%
10%
8
6.463
6.210
5.971
5.747
5.535
5.335
9
7.108
6.802
6.515
6.247
5.995
5.759
10
7.722
7.360
7.024
6.710
6.418
6.145
$23,070 positive
$99,550 positive
$13,070 negative
$4,130 negative
Proposal X
Proposal Y
Investment
$620,000
$400,000
Useful life
8 years
8 years
Estimated annual net cash inflows for 8 years
$130,000
$80,000
Residual value
$0
$0
Depreciation method
Straight-line
Straight-line
Discount rate
9%
10%
Explanation / Answer
Present value of net cash inflows 719550 =130000*5.535 Less: Investment 620000 Net present value of Proposal X 99550 Option B is correct
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