Net present value method

The following data are accumulated by Waiola Company in evaluating the purchase of $200,000 of equipment, having a 4-year useful life:

Year	Net Income	Net Cash Flow
Year 1	$30,000	$80,000
Year 2	25,000	75,000
Year 3	15,000	65,000
Year 4	10,000	60,000

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. If required, round to the nearest dollar. Use the table of the present value of $1 presented above.

Line Item Description	Amount
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?

YesNo, because the net present value indicates that the return on the proposal is greaterless than the minimum desired rate of return of 15%.