Net Present Value Method

The following data are accumulated by Lingle Company in evaluating the purchase of $$127,000$ of equipment, having a $4-$year useful life:

Net Income Net Cash Flow

Year $1$ $$38,000$ $$64,000$

Year $223,00049,000$

Year $311,00037,000$

Year $4(1,000)25,000$

Present Value of $$1$ at Compound Interest

Year $6\%10\%12\%15\%20\%$

$10\mathrm{.}9430\mathrm{.}9090\mathrm{.}8930\mathrm{.}8700\mathrm{.}833$

$20\mathrm{.}8900\mathrm{.}8260\mathrm{.}7970\mathrm{.}7560\mathrm{.}694$

$30\mathrm{.}8400\mathrm{.}7510\mathrm{.}7120\mathrm{.}6580\mathrm{.}579$

$40\mathrm{.}7920\mathrm{.}6830\mathrm{.}6360\mathrm{.}5720\mathrm{.}482$

$50\mathrm{.}7470\mathrm{.}6210\mathrm{.}5670\mathrm{.}4970\mathrm{.}402$

$60\mathrm{.}7050\mathrm{.}5640\mathrm{.}5070\mathrm{.}4320\mathrm{.}335$

$70\mathrm{.}6650\mathrm{.}5130\mathrm{.}4520\mathrm{.}3760\mathrm{.}279$

$80\mathrm{.}6270\mathrm{.}4670\mathrm{.}4040\mathrm{.}3270\mathrm{.}233$

$90\mathrm{.}5920\mathrm{.}4240\mathrm{.}3610\mathrm{.}2840\mathrm{.}194$

$100\mathrm{.}5580\mathrm{.}3860\mathrm{.}3220\mathrm{.}2470\mathrm{.}162$

a$.$ Assuming that the desired rate of return is $6\%,$ 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 $fill in the blank $1$

Amount to be invested $fill in the blank $2$

Net present value $fill in the blank $3$

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

The net present value indicates that the return on the proposal is

than the minimum desired rate of return of $6\%.$