Question

The following data are accumulated by Reynolds Company in evaluating the purchase of $161,800 of equipment, having a four-year useful life:

Net Income |
Net Cash Flow |
|||

Year 1 | $39,000 | $66,000 | ||

Year 2 | 24,000 | 51,000 | ||

Year 3 | 11,000 | 38,000 | ||

Year 4 | (1,000) | 26,000 |

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
12%, 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 | $ |

Less amount to be invested | $ |

Net present value | $ |

**b.** Would management be likely to look with
favor on the proposal?

The net present value indicates that the return on the proposal is than the minimum desired rate of return of 12%.

Answer #1

Net Present Value Method
The following data are accumulated by Reynolds Company in
evaluating the purchase of $121,300 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$42,000
$72,000
Year 2
26,000
55,000
Year 3
13,000
42,000
Year 4
(1,000)
28,000
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...

The following data are accumulated by Paxton Company in
evaluating the purchase of $142,800 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
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%
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...

The following data are accumulated by Paxton Company in
evaluating the purchase of $136,300 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...

The following data are accumulated by Paxton Company in
evaluating the purchase of $199,000 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$43,000
$73,000
Year 2
26,000
56,000
Year 3
13,000
42,000
Year 4
(1,000)
28,000
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...

The following data are accumulated by Geddes Company in
evaluating the purchase of $109,100 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$30,000
$51,000
Year 2
18,000
39,000
Year 3
9,000
30,000
Year 4
(1,000)
20,000
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...

Net Present Value Method
The following data are accumulated by Geddes Company in
evaluating the purchase of $123,300 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$34,000
$58,000
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...

Net Present Value Method
The following data are accumulated by Geddes Company in
evaluating the purchase of $111,700 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$28,000
$48,000
Year 2
17,000
37,000
Year 3
8,000
28,000
Year 4
(1,000)
19,000
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...

Net Present Value Method
The following data are accumulated by Geddes Company in
evaluating the purchase of $188,100 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$44,000
$74,000
Year 2
27,000
57,000
Year 3
13,000
43,000
Year 4
(1,000)
29,000
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...

Net Present Value Method
The following data are accumulated by Geddes Company in
evaluating the purchase of $160,000 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$43,000
$73,000
Year 2
26,000
56,000
Year 3
13,000
42,000
Year 4
(1,000)
28,000
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...

Net Present Value Method
The following data are accumulated by Geddes 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...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 5 minutes ago

asked 7 minutes ago

asked 12 minutes ago

asked 22 minutes ago

asked 22 minutes ago

asked 23 minutes ago

asked 29 minutes ago

asked 35 minutes ago

asked 35 minutes ago

asked 35 minutes ago

asked 43 minutes ago