The following data are accumulated by Wocester Hat Company in evaluating the purchase of $250,000 of equipment, having a four-year useful life with no residual value.

a. Assuming that the desired rate of return is 10%, determine the net present value for the proposal. Use the table of the present value of $1 appearing in Exhibit 2 of this chapter.
b. Would management be likely to look with favor on the proposal? Explain.
Exhibit2

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Net Income (Loss) Net Cash Flows Year 1 Year 2 Year 3 Year 4 $37,500 27,500 12,500 (2,500) $100,000 90,000 75,000 60,000 Present Value of $1 at Compound Interest 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 1596 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 Year 6% 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.840 0.792 0.747 0.705 0.592 10 0.558