Question

net present value method The following data are accumulated by Geddes Company in evaluating the purchase of $150,000 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $45,500 $83,000 Year 2 20,500 58,000 Year 3 17,000 54,500 Year 4 3,500 41,000 Assuming that the desired rate of return is 20%, determine the net present value for the proposal. If required, round to the nearest dollar.

Answer 1

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$150,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the rate of return of 20%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.  

Net present value at 20% rate of return is $10,756.17.