The following data are accumulated by Paxton Company in evaluating the purchase of $117,000 of equipment, having
Fantastic news! We've Found the answer you've been seeking!
Question:
The following data are accumulated by Paxton Company in evaluating the purchase of $117,000 of equipment, having a four-year useful life:
Net Income | Net Cash Flow | |||
Year 1 | $30,000 | $50,000 | ||
Year 2 | 18,000 | 39,000 | ||
Year 3 | 9,000 | 29,000 | ||
Year 4 | (1,000) | 20,000 |
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 15%, 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?
No
The net present value indicates that the return on the proposal is less than the minimum desired rate of return of 15%.
Related Book For
Accounting
ISBN: 978-1337899451
27th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
Posted Date: