Please answer to parts 1-5 Case 25.14 (Present value tables are needed.) Simms M

Question

Please answer to parts 1-5

Case 25.14 (Present value tables are needed.) Simms Manufacturing is considering two alternative investment proposals with the following data: Proposal X $620,000 8 years Proposal Y $400,000 8 years Investment Useful life Estimated annual net cash inflows Residual value Depreciation method Required rate of returrn $130,000 $60,000 $80,000 $0 Straight-line Straight-lie 14% 10% l) Refer to Case 25.14. What is the total present value of future cash inflows from Proposal Y? 2) Refer to Case 25.14. What is the total present value of future cash inflows from Proposal X? 3) Refer to Case 25.14. What is the net present value of Proposal Y? 4) Refer to Case 25.14. What is the net present value of Proposal X? 5) Refer to Case 25.14. Using the net present value model, which alternative should Simms select, and why? 4

Explanation / Answer

Project X: Q no. 2 & 4:

Workings:

Project Y: Q no 1 & 3:

Q No 5: since project Y has highest NPV, it should be accepted.

Particulars Amount Present value of annual cashflows     6,03,051.80 Present value of terminal cashflows         21,033.60 Total present value of future cash inflows     6,24,085.40 Less: present value of initial cashflows     6,20,000.00 Net present value           4,085.40

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