**Educational Resource: Evaluating Investment Proposals****Problem Statement:**The following data are accumulated by Geddes Company in evaluating the purchase of $150,000 of equipment, having a four-year useful life:| Year | Net Income | Net Cash Flow ||-------|------------|---------------|| Year 1 | $43,500 | $81,000 || Year 2 | $26,500 | $64,000 || Year 3 | $13,500 | $50,500 || Year 4 | $2,900 | $40,000 |**Tasks:****a. Determining Net Present Value:**Assuming that the desired rate of return is 15%, determine the net present value (NPV) for the proposal. Use the table of the present value of $1 appearing in Exhibit 2 of this chapter.**b. Management Decision:**Would management be likely to look with favor on the proposal? Explain your reasoning based on the calculated NPV and other relevant factors.**Explanation of Table:**- The table presents four years of projected financial outcomes for Geddes Company.- "Net Income" refers to the profit after accounting for all expenses.- "Net Cash Flow" indicates the actual cash produced by the equipment investment each year.- These figures help in assessing the viability of the investment by calculating its NPV.To complete the tasks, calculate the NPV by discounting the net cash flows at the desired rate of return and analyzing the results in context with the initial investment cost.

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4. The following data are accumulated by Geddes Company in evaluating the purchase of $150,000 of equipment, having a four-year useful life: Year 1 Year 2 Year 3 Year 4 Year Net Income $43,500 26,500 13,500 2,900 Net Cash Flow $81,000 64,000 50,500 40,000 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 appearing in Exhibit 2 of this chapter. b. Would management be likely to look with favor on the proposal? Explain.

4. The following data are accumulated by Geddes Company in evaluating the purchase of $150,000 of equipment, having a four-year useful life: Year 1 Year 2 Year 3 Year 4 Year Net Income $43,500 26,500 13,500 2,900 Net Cash Flow $81,000 64,000 50,500 40,000 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 appearing in Exhibit 2 of this chapter. b. Would management be likely to look with favor on the proposal? Explain.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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