Simms Manufacturing is considering two alternative investment proposals with the following data:
Proposal X Proposal Y
Investment $620,000 $400,000
Useful life 8 years 8 years
Estimated annual net
cash inflows $130,000 $80,000
Residual value $60,000 $0
Depreciation method Straight-line Straight-line
Required rate of return 14% 10%
Using the net present value model, which alternative should Simms select, and why?
A) Proposal X, because it is the only alternative with a positive net present value.
D) F None of the above.
B) Proposal Y, because its net present value is $22,670 higher than the net present value of Proposal X.
C) Proposal Y, because it is the only alternative with a positive net present value.