Net Present Value Method The Following Data Are Accumulated By Geddes Company In Evaluating The Purchase Of 138 900 Of 1 (75.73 KiB) Viewed 33 times
Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase of $138,900 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $35,000 $60,000 Year 2 22,000 46,000 Year 3 11,000 35,000 Year 4 (1,000) 23,000 Present Value of $1 at Compound Interest 6% 10% 12% 15% 0.943 0.909 0.893 0.870 0.890 0.826 0.797 0.756 0.840 0.751 0.712 0.658 0.792 0.683 0.636 0.572 0.747 0.621 0.567 0.497 0.705 0.564 0.507 0.432 0.665 0.513 0.452 0.376 Year 1 2 3 4 5 6 7 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279
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. If required, use the minus sign to indicate a negative net present value. 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%. 7
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