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Nylan Manufacturing is considering two alternative investment proposals with the

ID: 2486396 • Letter: N

Question

Nylan Manufacturing is considering two alternative investment proposals with the following details:

Proposal X

Proposal Y

Investment

$730,000

$514,000

Useful life

5 years

4 years

Estimated annual net cash inflows

$166,000

$106,000

Residual value

$60,000

$0

Depreciation method

Straightline

Straightline

Discount rate

10%

9%

What is the total present value of future cash inflows from Proposal X?

Present value of annuity of $1:

A. $659,099

B. $666,566

C. $629,306

D. $821,523

Proposal X

Proposal Y

Investment

$730,000

$514,000

Useful life

5 years

4 years

Estimated annual net cash inflows

$166,000

$106,000

Residual value

$60,000

$0

Depreciation method

Straightline

Straightline

Discount rate

10%

9%

Explanation / Answer

CALCUALTION OF TOTAL PRESENT VALUE OF PROPOSAL X :

PRESENT VALUE OF RESIDUAL VALUE (60,000 X 0.6209)                                   =      37,254

TOTAL PRESENT VALUE OF PROPOSAL X   (629,273+37,254)                            = $666,527