Question

he following data are accumulated by Geddes Company in evaluating the purchase of $131,700 of equipment, having a four-year useful life:

	Net Income		Net Cash Flow
Year 1	$44,000		$74,000
Year 2	27,000		57,000
Year 3	13,000		43,000
Year 4	(1,000)		29,000

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

a. Assuming that the desired rate of return is 12%, determine the net present value for the proposal. Use the table of the present value of $1 presented above. If required, round to the nearest dollar.

Present value of net cash flow	$
Amount to be invested	$
Net present value	$

b. Would management be likely to look with favor on the proposal?
, because the net present value indicates that the return on the proposal is   than the minimum desired rate of return of 12%.

Answer 1

Year 1 NET PRESENT VALUE Table Value @ Equipment 12% Cash Flows PVCF 0.893 74000 0.797 57000 0.712 43000 0.636 29000 2 3 66082 45429 30616 18444 160571 Answers Present Value of Net cashflows Amount to be invested Net present Value 160571 131700 28871 would Management be likely to look with YES favor on the Proposal YES Because the net present value indicates that the return on the proposal is More than the Minimum desired rate of Return 12%