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Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase of $99,100 of equipment, having a four-year useful life:   Net Income Net Cash Flow Year 1 $35,000   $59,000   Year 2 21,000   45,000   Year 3 10,000   34,000   Year 4 (1,000)   23,000   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. Use the table of the present value of $1 presented above. If required, round to the nearest dollar. Present value of net cash flow $fill in the blank 1 Amount to be invested $fill in the blank 2 Net present value $fill in the blank 3 b.  Would management be likely to look with favor on the proposal?  , because the net present value indicates that the return on the proposal is   than the minimum desired rate of return of 15%

Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase of $99,100 of equipment, having a four-year useful life:   Net Income Net Cash Flow Year 1 $35,000   $59,000   Year 2 21,000   45,000   Year 3 10,000   34,000   Year 4 (1,000)   23,000   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. Use the table of the present value of $1 presented above. If required, round to the nearest dollar. Present value of net cash flow $fill in the blank 1 Amount to be invested $fill in the blank 2 Net present value $fill in the blank 3 b.  Would management be likely to look with favor on the proposal?  , because the net present value indicates that the return on the proposal is   than the minimum desired rate of return of 15%

FINANCIAL ACCOUNTING
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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  1. Net Present Value Method

    The following data are accumulated by Geddes Company in evaluating the purchase of $99,100 of equipment, having a four-year useful life:

      Net Income Net Cash Flow
    Year 1 $35,000   $59,000  
    Year 2 21,000   45,000  
    Year 3 10,000   34,000  
    Year 4 (1,000)   23,000  
    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. Use the table of the present value of $1 presented above. If required, round to the nearest dollar.

    Present value of net cash flow $fill in the blank 1
    Amount to be invested $fill in the blank 2
    Net present value $fill in the blank 3

    b.  Would management be likely to look with favor on the proposal?
     , because the net present value indicates that the return on the proposal is   than the minimum desired rate of return of 15%.

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