Net Present Value Method The following data are accumulated by Reynolds Company in evaluating the purchase of $135,500 of equipment, having a four-year useful life: Net Income Net Cash Flow

Net Income		Net Cash Flow
Year 1	$41,000		$70,000
Year 2	25,000		54,000
Year 3	12,000		41,000
Year 4	(1,000)		27,000

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.

Present value of net cash flow	$
Less amount to be invested	$
Net present value	$

b. Would management be likely to look with favor on the proposal? SelectYesNoItem 4

The net present value indicates that the return on the proposal is SelectgreaterlessItem 5 than the minimum desired rate of return of 15%.