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Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase...

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 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 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 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?
No , because the net present value indicates that the return on the proposal is less  than the minimum desired rate of return of 10%.

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