Question: E15-7. Net Present Value Method The following data are accumulated by Mad Hatter Company in evaluating the purchase of $125,000 of equipment, having a four-year
E15-7. Net Present Value Method
The following data are accumulated by Mad Hatter Company in evaluating the purchase of $125,000 of equipment, having a four-year useful life with no residual value.
|
| Net Income (Loss) | Net Cash Flows |
| Year 1 | $18,750 | $50,000 |
| Year 2 | 13,750 | 45,000 |
| Year 3 | 6,250 | 40,000 |
| Year 4 | (1,250) | 30,000 |
A. Assuming that the desired rate of return is 10%, 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.
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