Simms Manufacturing Is Considering Two Alternative Investment Proposals with the Following

question 132

Multiple Choice

Simms Manufacturing is considering two alternative investment proposals with the following data:
$\begin{array}{|l|r|r|}\hline &\text { Proposal X } & \text { Proposal Y } \\\hline \text { Investment } & \$ 620,000 & \$ 400,000 \\\hline \text { Useful life } & 8 \text { years } & 8 \text { year } \\\hline \text { Estimated annual net cash inflows for } & & \\ \text { years } & \$ 130,000 & \$ 80,000 \\\hline \text { Residual value } & \$ 0 & \$ 0 \\\hline \text { Depreciation method } & \text { Straight-line } & \text { Straight-line } \\\hline \text { Discount rate } & 9 \% & 10 \%\\\hline\end{array}$

What is the total present value of future cash inflows from Proposal X?
$$\begin{array} { | r | r | r | r | r | r | r | } \hline \begin{array} { r } \text { Prefent Value of } \\\text { an Annuity of \$1 }\end{array} & & & & & & \\ \hline & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% & 10 \% \\\hline 1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline2&1.859&1.833&1.808&1.783&1.759&1.736\\\hline 3 & 2.723 & 2.83 & 1.808 & 1.783 & 1.759 & 1.736 \\\hline 4 & 3.546 & 3.465 & 2.624 & 2.577 & 2.531 & 2.487 \\\hline 5 & 4.329 & 4.21 & 4.100 & 3.312 & 3.240 & 3.170 \\\hline 6 & 5.076 & 4.917 & 4.767 & 4.623 & 3.890 & 3.79 \\\hline 7 & 5.786 & 5.58 & 5.389 & 5.206 & 5.033 & 4.355 \\\hline 8 & 6.463 & 6.210 & 5.971 & 5.747 & 5.535 & 5.335 \\\hline 9 & 7.108 & 6.80 & 6.515 & 6.247 & 5.995 & 5.759 \\\hline 10 & 7.722 & 7.360 & 7.024 & 6.710 & 6.418 & 6.145 \\\hline\end{array}$$

• A) $878,340
• B) $703,070
• C) $614,230
• D) $719,550

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Definitions:

Bank Statement

A report issued by a bank detailing the transactions in a customer's account over a specific period.

Deposit In Transit

Money that has been received and recorded by a business but has not yet been recorded by its bank.

Outstanding Checks

Checks that have been written and recorded in the issuing entity's books but have not yet been cashed or cleared by the bank.

Note Receivable

A written promise for amounts to be received, typically outlining the terms including payment amounts, interest rate, and due date.