Net Present Value Method The following data are accumulated by Wocester Hat Company in evaluating the purchase of $129,100 of equipment, having a four-year useful life: Net Income (Loss) Net Cash Flows Year 1 $41,000 $70,000 Year 2 25,000 54,000 Year 3 12,000 41,000 Year 4 (1,000) 27,000
Net Present Value Method The following data are accumulated by Wocester Hat Company in evaluating the purchase of $129,100 of equipment, having a four-year useful life: Net Income (Loss) Net Cash Flows Year 1 $41,000 $70,000 Year 2 25,000 54,000 Year 3 12,000 41,000 Year 4 (1,000) 27,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Net Present Value Method
The following data are accumulated by Wocester Hat Company in evaluating the purchase of $129,100 of equipment, having a four-year useful life:
Net Income (Loss)
Net Cash Flows
Year 1
$41,000
$70,000
Year 2
25,000
54,000
Year 3
12,000
41,000
Year 4
(1,000)
27,000
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
0.943
0.909
0.893
0.870
0.833
0.890
0.826
0.797
0.756
0.694
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
0.747
0.621
0.567
0.497
0.402
0.705
0.564
0.507
0.432
0.335
0.665
0.513
0.452
0.376
0.279
8
0.627
0.467
0,404
0.327
0.233
6.
0.592
0.424
0.361
0.284
0.194
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Transcribed Image Text:ebook
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0.890
0.826
0.797
U.756
0.694
0.840
0.751
0.712
0.658
0.579
4.
0.792
0.683
0.636
0.572
0.482
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
0.627
0.467
0.404
0.327
0.233
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 10%, determine the net present value for the proposal. Use the table of the present value of $1 presented above. 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?
Yes v
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Expert Solution
Step 1
Net present value means the difference between the present value of cash inflow and present value of cash outflow.
If it is positive , then project should be accepted , otherwise rejected.
Necessary calculations has been made.
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