Question: Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase of $153,200 of equipment, having a four-year useful life:
-
Net Present Value Method
The following data are accumulated by Geddes Company in evaluating the purchase of $153,200 of equipment, having a four-year useful life:
Net Income Net Cash Flow Year 1 $44,000 $75,000 Year 2 27,000 58,000 Year 3 13,000 44,000 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 $ 182,273
Amount to be invested $ -206,000
Net present value $ b. Would management be likely to look with favor on the proposal?
- Yes
- No
- greater
- less
Feedback
a. Multiply the present value of $1 factor for each year (Exhibit 2) by that year's net cash flow. Subtract the amount to be invested from the total present value of the net cash flow. Will management be more favorable to a positive net present value or a negative net present value?
b. Consider the time value of money.
Learning Objective 3.
Loading item
There was an error loading this item. If this continues to occur, please contact Technical Support.
Check My Work
- Previous
- Next
- 100% Correct
- Partially Correct
- Incorrect
- Needs Instructor Grading
Basic Calculatorclose
0
UseEntBSBSpCEHomCEnd
789+
456-
123*
0.=/
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
Study Help