Net present value methodThe following data are accumulated by Waiola Company in evaluating the purchase of $150,000 of equipment, having a 4-year useful life:Net Income Net Cash Flow$55,00042,00032,00021,000Year 1Year 2Year 3Year 4Year123456789100.943Present Value of $1 at Compound Interest6%12%10%0.909 0.893 0.8700.6940.826 0.797 0.7560.7510.683 0.6360.712 0.658 0.5790.572 0.4820.621 0.567 0.497 0.4020.7470.7050.4320.3350.564 0.5070.513 0.452 0.376 0.2790.6650.404 0.327 0.2330.6270.5920.4670.4240.3610.558 0.386 0.3220.284 0.1940.2470.1620.8900.840$32,00020,00010,000(1,000)0.79215%20%0.833a. Assuming that the desired rate of return is 6%, determine the net present value for the proposal. Use the table of the present value of $1 presented above. If required, round to the nearest dollar. If required, use theminus sign to indicate a negative net present value.Present value of net cash flowAmount to be investedNet present value$b. Would management be likely to look with favor on the proposal?because the net present value indicates that the return on the proposal isthan the minimum desired rate of return of 6%.

NET PRESENT VALUENet Present Value is one of the Important Capital Budgeting Techniques. Net Present…

Net present value method The following data are accumulated by Waiola Company in evaluating the purchase of $150,000 of equipment, having a 4-year useful life: Net Income Net Cash Flow $55,000 42,000 32,000 21,000 Year 1 Year 2 Year 3 Year 4 Year 1 2 3 4 5 6 7 8 9 10 0.943 Present Value of $1 at Compound Interest 6% 10% 12% 15% 0.890 0.840 0.792 $32,000 20,000 0.747 0.705 0.665 0.627 0.592 0.558 10,000 (1,000) 20% 0.909 0.893 0.870 0.826 0.797 0.756 0.751 0.683 0.636 0.621 0.567 0.497 0.507 0.432 0.335 0.452 0.376 0.279 0.404 0.327 0.233 0.284 0.194 0.247 0.162 0.564 0.513 0.467 0.424 0.361 0.386 0.322 0.833 0.694 0.712 0.658 0.579 0.572 0.482 0.402 a. Assuming that the desired rate of return is 6%, 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 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? because the net present value indicates that the return on the proposal is than the minimum desired rate of return of 6%.

Net present value method The following data are accumulated by Waiola Company in evaluating the purchase of $150,000 of equipment, having a 4-year useful life: Net Income Net Cash Flow $55,000 42,000 32,000 21,000 Year 1 Year 2 Year 3 Year 4 Year 1 2 3 4 5 6 7 8 9 10 0.943 Present Value of $1 at Compound Interest 6% 10% 12% 15% 0.890 0.840 0.792 $32,000 20,000 0.747 0.705 0.665 0.627 0.592 0.558 10,000 (1,000) 20% 0.909 0.893 0.870 0.826 0.797 0.756 0.751 0.683 0.636 0.621 0.567 0.497 0.507 0.432 0.335 0.452 0.376 0.279 0.404 0.327 0.233 0.284 0.194 0.247 0.162 0.564 0.513 0.467 0.424 0.361 0.386 0.322 0.833 0.694 0.712 0.658 0.579 0.572 0.482 0.402 a. Assuming that the desired rate of return is 6%, 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 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? because the net present value indicates that the return on the proposal is than the minimum desired rate of return of 6%.

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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Net Present Value Method The following data are accumulated by Paxton Company in evaluating the purchase of $82,600 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $31,000 $53,000 Year 2 19,000 41,000 Year 3 9,000 31,000 Year 4 (1,000) 21,000 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 20%, 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 a negative net present value.…
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