2-

Ever-Green Manufacturing is considering two alternative investment proposals with the following details:

	Proposal X	Proposal Y
Investment	$409,700	$400,300
Useful life	5 years	4 years
Estimated annual net cash inflows	$150,000	$190,000
Residual value	$50,000	$0
Target rate	10%	10%

What is the net present value (NPV) of each Proposal?

Present value of annuity of $1:

	8%	9%	10%
1	0.926	$0.92	0.909
2	1.783	1.759	1.736
3	2.577	2.531	2.487
4	3.312	3.24	3.17
5	3.993	3.89	3.791

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	0.65	0.621

Select one:

Proposal X :$199,700, Proposal Y: $602,300

Proposal X :$599,700, Proposal Y: $602,300

Proposal X :$199,700, Proposal Y: $202,300

Proposal X :$400,000, Proposal Y: $400,000

Proposal X :$190,000, Proposal Y: $202,000

Proposal X :$599,700, Proposal Y: $202,300

4-

Which from the following is true regarding the methods of analyzing a potential capital investment:

Select one:

All else being equal, investments with longer payback periods are preferable.

The NPV method of evaluating capital investments suggests that a project with present value cost of the investment that exceed its present value of cash inflows should be accepted.

Payback provides management with valuable information about the time period within which the cash invested will be recouped.

Net present value and profitability index do not consider the time value of money, so they are inappropriate for longer-term capital investments.

The NPV method of evaluating capital investments suggests that a project with negative net cash inflows should be accepted.