Stellan Manufacturing is considering the following two investment proposals: Proposal X Proposal Y Investment $ 724...
Stellan Manufacturing is considering the following two investment proposals:
|
Proposal X |
Proposal Y |
|
|
Investment |
$ 724 comma 000$724,000 |
$ 510 comma 000$510,000 |
|
Useful life |
5 years |
4 years |
|
Estimated annual net cash inflows received at the end of each year |
$ 158 comma 000$158,000 |
$ 106 comma 000$106,000 |
|
Residual value |
$ 66 comma 000$66,000 |
$0 |
|
Depreciation method |
Straightminus−line |
Straightminus−line |
|
Annual discount rate |
10% |
9% |
Present value of an ordinary annuity of $1:
|
8% |
9% |
10% |
|
|
1 |
0.926 |
0.917 |
0.909 |
|
2 |
1.783 |
1.759 |
1.736 |
|
3 |
2.577 |
2.531 |
2.487 |
|
4 |
3.312 |
3.240 |
3.170 |
|
5 |
3.993 |
3.809 |
3.791 |
|
6 |
4.623 |
4.486 |
4.355 |
Compute the present value of the future cash inflows from Proposal Y.
A.
$272,085
B.
$295,800
C.
$343,440
D.
$255,000
Homework Answers
Correct answer--------(C) $343,440
Working
| Present value schedule | |||
| Year | Payments | PVA Factor @9% | Present value (106000 x 3.240) |
| 1-4 | $ 106,000.00 | 3.240 | $ 343,440 |
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