Net present value method OBJ. 3 The following data are accumulated by Dillon Company in evaluating the purchase of

$39,600 of equipment, having a four-year useful life:

Net Income Net Cash Flow Year 1 $ 4,100 $14,000 Year 2 8,100 18,000 Year 3 7,100 17,000 Year 4 2,100 12,000

a. Assuming that the desired rate of return is 15%, determine the net present value for the proposal. Use the table of the present value of $1 appearing in Exhibit 2 of this chapter.

b. Would management be likely to look with favor on the proposal? Explain.