Rocco Manufacturing is considering following two investment proposals: Proposal X Proposal Y Investment $740,000 $508,000 Useful...
Rocco Manufacturing is considering following two investment proposals:
|
Proposal X |
Proposal Y |
|
|
Investment |
$740,000 |
$508,000 |
|
Useful life |
5 years |
4 years |
|
Estimated annual net cash inflows received at the end of each year |
$154,000 |
$92,000 |
|
Residual value |
$66,000 |
$0 |
|
Depreciation method |
Straight-line |
Straight-line |
|
Annual discount rate |
10% |
9% |
Compute the present value of the future cash inflows from Proposal X.
Present value of an ordinary annuity of $1:
|
8% |
9% |
10% |
|
|
1 |
0.926 |
0.917 |
0.909 |
|
2 |
1.783 |
1.759 |
1.736 |
|
3 |
2.577 |
2.531 |
2.487 |
|
4 |
3.312 |
3.240 |
3.170 |
|
5 |
3.993 |
3.890 |
3.791 |
|
6 |
4.623 |
4.486 |
4.355 |
Present value of $1:
|
8% |
9% |
10% |
|
|
1 |
0.926 |
0.917 |
0.909 |
|
2 |
0.857 |
0.842 |
0.826 |
|
3 |
0.794 |
0.772 |
0.751 |
|
4 |
0.735 |
0.708 |
0.683 |
|
5 |
0.681 |
0.650 |
0.621 |
|
6 |
0.630 |
0.596 |
0.564 |
A.
$762,136
B.
$668,128
C.
$624,800
D.
$583,814
Homework Answers
Correct answer---------(D) $583,814
Working
| Annual Cash flow | x | PVA Factor @10% | = | Present Calue |
| 154,000.00 | x | 3.791 | = | $ 583,814 |
Add Answer to:
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