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Nylan Manufacturing Is Considering Two Alternative Investment Proposals with the Following

question 49

Multiple Choice

Nylan Manufacturing is considering two alternative investment proposals with the following details: $\begin{array}{|l|r|r|} \hline& \text { Proposal X } & \text { Proposal } Y \\\hline \text { Investment } & \$ 720,000 & \$ 500,000 \\\hline \text { Useful life } & 5 \text { years } & 4 \text { years } \\\hline \text { Estimated annual net cash inflows } & \$ 150,000 & \$ 90,000 \\\hline \text { Residual value } & \$ 50,000 & \$ 0 \\\hline \text { Depreciation method } & \text { Straight-line } & \text { Straight-line } \\\hline \text { Discount rate } & 10 \% & 9 \% \\\hline\end{array}$ What is the total present value of future cash inflows from Proposal X?
Present value of annuity of $1:
$\begin{array}{|r|r|r|r|} \hline& {8 \%} &{9 \%} &{10 \%} \\\hline 1 & 0.926 & \$ 0.92 & 0.909 \\\hline 2 & 1.783 & 1.759 & 1.736 \\\hline 3 & 2.577 & 2.531 & 2.487 \\\hline 4 & 3.312 & 3.24 & 3.17 \\\hline 5 & 3.993 & 3.89 & 3.791 \\\hline 6 & 4.623 & 4.486 & 4.359 \\\hline\end{array}$ Present value of $1:
$\begin{array}{|r|r|r|r|} \hline &{8 \%} &{9 \%} &{10 \%} \\\hline 1 & 0.926 & 0.917 & 0.909 \\\hline 2 & 0.857 & 0.847 & 0.826 \\\hline 3 & 0.794 & 0.772 & 0.751 \\\hline 4 & 0.735 & 0.708 & 0.683 \\\hline 5 & 0.681 & 0.69 & 0.621 \\\hline 6 & 0.63 & 0.596 & 0.564 \\\hline\end{array}$

Definitions:

Marginal Tax Rate

The tax rate that applies to the next dollar of taxable income; the percentage of tax applied to your income for each tax bracket in which you qualify.

Taxable Income

The amount of income that is subject to tax, after all allowable deductions, exemptions, and adjustments.

Average Tax Rate

The ratio of the total amount of taxes paid to the total income, showing the percentage of income paid in taxes.

Progressive Tax

A taxation system where the tax rate increases as the taxable amount (income or profits) increases, making it proportionately more taxing on higher earners.