The following data are accumulated by Wocester Hat Company in evaluating the purchase of $160,000 of...

Transcribed Image Text:

The following data are accumulated by Wocester Hat Company in evaluating the purchase of $160,000 of equipment, having a four-year useful life: Net Income (Loss) $43,000 26,000 13,000 (1,000) Year 1 Year 2 Year 3 Year 4 Year 1 2 3 4 5 6 7 8 9 10 6% 0.943 Present Value of $1 at Compound Interest 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 Net Cash Flows 0.322 $73,000 56,000 42,000 28,000 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 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, use the minus sign to indicate a negative net present value. 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? The following data are accumulated by Wocester Hat Company in evaluating the purchase of $160,000 of equipment, having a four-year useful life: Net Income (Loss) $43,000 26,000 13,000 (1,000) Year 1 Year 2 Year 3 Year 4 Year 1 2 3 4 5 6 7 8 9 10 6% 0.943 Present Value of $1 at Compound Interest 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 Net Cash Flows 0.322 $73,000 56,000 42,000 28,000 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 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, use the minus sign to indicate a negative net present value. 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?

Answer rating: 100% (QA)

1 2 3 4 5 6 7 A Year 1 2 3 4 B Net Cash Flow 73000 56000 42000 2800... View the full answer