Net present value methodThe following data are accumulated by Waiola Company in evaluating the purchase of $172,300 of equipment, having a 4-year useful life:Net Income Net Cash Flow$68,00052,00039,00027,000Year 1Year 2Year 3Year 4Year12345678910Present Value of $1 at Compound Interest6%10%0.9430.8900.8400.7920.7470.7050.6650.6270.5920.558$40,00024,00012,000(1,000)Amount to be invested0.9090.8260.7510.6830.6210.5640.5130.467I0.4240.386Present value of net cash flow12%0.8930.7970.7120.6360.5670.5070.4520.4040.3610.32215%0.8700.7560.6580.5720.4970.4320.3760.3270.2840.24720%0.8330.6940.5790.4820.4020.3350.2790.233a. 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 presented above. If required, round to the nearest dollar. If required, use the minus sign to indicate anegative net present value.0.1940.162172,300XNet present valueb. Would management be likely to look with favor on the proposal?Nobecause the net present value indicates that the return on the proposal is lessthan the minimum desired rate of return of 10%.

The net present value method is used to evaluate the investment projects. We can evaluate the…

Net present valde munca The following data are accumulated by Waiola Company in evaluating the purchase of $172,300 of equipment, having a 4-year useful life: Net Income Net Cash Flow $68,000 52,000 Year 1 Year 2 Year 3 Year 4 $40,000 24,000 12,000 (1,000) 39,000 27,000 Present Value of $1 at Compound Interest 1004 1206 150 2006

Net present valde munca The following data are accumulated by Waiola Company in evaluating the purchase of $172,300 of equipment, having a 4-year useful life: Net Income Net Cash Flow $68,000 52,000 Year 1 Year 2 Year 3 Year 4 $40,000 24,000 12,000 (1,000) 39,000 27,000 Present Value of $1 at Compound Interest 1004 1206 150 2006

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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