Stellan Manufacturing Is Considering the Following Two Investment Proposals Compute the Present Value of the Future Cash Inflows from

question 105

Multiple Choice

Stellan Manufacturing is considering the following two investment proposals: $$\begin{array} { | l | r | r | } \hline & \text { Proposal } X & \text { Proposal } \mathbf { Y } \\\hline \text { Investment } & \$ 738,000 & \$ 508,000 \\\hline \text { Useful life } & 5 \text { years } & 4 \text { years } \\\hline \text { Estimated annual net cash inflows received } & & \\\text { at the end of each year } & \$ 152,000 & \$ 100,000 \\\hline \text { Residual value } & \$ 62,000 & \$ 0 \\\hline \text { Depreciation method } & \text { Straight-line } & \text { Straight-line } \\\hline \text { Annual discount rate } &10 \% & 9 \%\\\hline\end{array}$$ Compute the present value of the future cash inflows from Proposal Y.
Present value of an ordinary annuity of $1:
$$\begin{array} { | l | r | r | r | } \hline &{ 8 \% } &{ 9 \% } & 10 \% \\\hline 1 & 0.926 & 0.917 & 0.909 \\\hline 2 & 1.783 & 1.759 & 1.736 \\\hline 3 & 2.577 & 2.531 & 2.487 \\\hline 4 & 3.312 & 3.240 & 3.170 \\\hline 5 & 3.993 & 3.809 & 3.791 \\\hline 6 & 4.623 & 4.486 & 4.355 \\\hline\end{array}$$

• A) $271,018
• B) $324,000
• C) $294,640
• D) $254,000

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Definitions:

Reducing

The process of decreasing the size, quantity, or extent of something.

Traction

The process of pulling; with fractures, traction is applied in a straight line to stretch the contracted muscles and permit realignment of the bone fragments.

Joint Membranes

Tissue layers surrounding joints, producing fluid that lubricates joint surfaces, facilitating smooth movement.

Rheumatoid Arthritis

An autoimmune disease characterized by chronic inflammation of the joints, leading to pain, swelling, and eventual destruction of joint integrity.