Simms Manufacturing Is Considering Two Alternative Investment Proposals with the Following

question 6

Multiple Choice

Simms Manufacturing is considering two alternative investment proposals with the following data:
$\begin{array}{|l|r|r|r|}\hline &\text { Proposal X } & \text { Proposal Y } \\ \hline \text { Investment } & \$ 620,000 & \$ 400,000 \\\hline \text { Useful life } & 8 \text { years } & 8 \text { years } \\\hline \text { Estimated annual net cash inflows for 8 years } & \$ 130,000 & \$ 80,000 \\\hline \text { Residual value } & \$ 60,000 & \$ 0 \\\hline \text { Depreciation method } & \text { Straight-line } & \text { Straight-line } \\\hline \text { Required rate of return } & 14 \% & 10 \%\\\hline \end{array}$


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What is the accounting rate of return for Proposal Y?

• A) 15.0%
• B) 16.0%
• C) 20.0%
• D) 40.0%

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Definitions:

Philanthropic Gift

A donation made by an individual or an organization to a nonprofit entity, typically for charitable purposes or to support a cause.

Government Grant

financial awards given by governmental bodies to organizations, institutions, or individuals for specific purposes, usually without the expectation of repayment.

Quasi-Endowment Funds

Funds set aside by an organization, often a nonprofit or educational institution, to function like an endowment but which can be accessed under certain conditions, as determined by its governing body.

Operating Reserves

Financial assets set aside by an organization to cover unexpected shortfalls or emergencies, ensuring financial stability and operational continuity.