Net Present Value Method

The following data are accumulated by Lingle Company in evaluating the purchase of $180,000 of equipment having a 4-year useful life:

		Net Income		Net Cash Flow
Year 1		$51,000		$96,000
Year 2	33,000	78,000
Year 3	15,000	60,000
Year 4	3,000	48,000

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.

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?

Yes or No

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

greater or less

than the minimum desired rate of return of 15%.