Simms Manufacturing is considering two alternative investment proposals with the following data:
$$\begin{array} { | l | l | l | }
\hline & \text { Proposal X } & \text { Proposal Y } \
\hline \text { Investment } & \$ 620,000 & \$ 400,000 \
\hline \text { Useful life } & 8 \text { years } & 8 \text { years } \
\hline \begin{array} { l }
\text { Estimated annual net } \
\text { cash inflows for 8 years }
\end{array} & \$ 130,000 & \$ 80,000 \
\hline \text { Residual value } & & \
\hline \text { Depreciation method } & \$ 60,000 & \$ 0 \
\hline \text { Required rate of return } & \text { Straight-line } & \text { Straight-line } \
\hline
\end{array}$$ Note: Present value and future value tables are needed .
What is the net present value of Proposal Y?

Question

Simms Manufacturing is considering two alternative investment proposals with the following data:
$$\begin{array} { | l | l | l | } 
\hline & \text { Proposal X } & \text { Proposal Y } \
\hline \text { Investment } & \$ 620,000 & \$ 400,000 \
\hline \text { Useful life } & 8 \text { years } & 8 \text { years } \
\hline \begin{array} { l } 
\text { Estimated annual net } \
\text { cash inflows for 8 years }
\end{array} & \$ 130,000 & \$ 80,000 \
\hline \text { Residual value } & & \
\hline \text { Depreciation method } & \$ 60,000 & \$ 0 \
\hline \text { Required rate of return } & \text { Straight-line } & \text { Straight-line } \
\hline
\end{array}$$ Note: Present value and future value tables are needed .
What is the net present value of Proposal Y?

Quizplus · Accepted Answer

To calculate the net present value (NPV) of Proposal Y, we need to consider the initial investment, the annual net cash inflows, and the required rate of return. However, the required rate of return is not provided in the question, which is crucial for calculating the present value of the cash inflows. Assuming we had the rate, we would calculate the present value of the $80,000 annual cash inflows over 8 years and subtract the initial investment of $400,000. Without the rate, we cannot perform the exact calculation, but the correct choice is based on understanding that NPV involves subtracting the initial investment from the present value of cash inflows. Given the options and the lack of specific data, the correct answer is chosen based on the assumption that the question implies a positive NPV scenario for Proposal Y, which would be consistent with a successful investment decision.

Simms Manufacturing Is Considering Two Alternative Investment Proposals with the Following