Simms Manufacturing is considering two alternative investment proposals with the following data:
Investment Useful life Estimated annual net cash inflows for 8 years Residual value Depreciation method Discount rate Proposal X $620,0008 years $130,000$0 Straight-line 9% Proposal Y $400,0008 years $80,000$0 Straight-line 10%
Present Value of an Annuity of $1 123456789105%1.9522.7233.5464.3295.0765.7866.4637.1087.7226%0.9432.833.4654.214.9175.586.2106.807.3607%0.9351.8082.6244.1004.7675.3895.9716.5157.0248%0.9261.7832.5773.3124.6235.2065.7476.2476.7109%0.9171.7592.5313.2403.8905.0335.5355.9956.41810%0.9091.7362.4873.1703.794.3555.3355.7596.145
After calculating the net present value of the two alternatives, Proposal Y appears to deliver the most
favorable results.
Perfect Competition
A market structure characterized by an infinite number of buyers and sellers, homogeneous products, perfect information, and no barriers to entry or exit.
Resources Allocation
The process of assigning available resources among various uses in an economy or organization to maximize the efficiency of those resources.
Firms Efficiency
The degree to which a company utilizes its resources effectively to produce goods and services and maximize profit.
Pareto Optimality
A situation where resources are distributed in such a way that improving the situation of any single person would lead to the detriment of at least one other person.