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%.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter7: Fixed Assets, Natural Resources, And Intangible Assets

Section: Chapter Questions

Problem 7.3.3MBA

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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 Cash Flow Year 1 Year 2 Year 3 Year 4 Year 1 2 3 4 5 6 7 8 9 10 6% 0.943 0.890 0.840 0.792 0.747 0.705 Present Value of $1 at Compound Interest 10% 0.665 0.627 0.592 Net Income 0.558 $42,500 27,500 12,500 2,500 0.909 0.826 0.751 0.683 d621 0.564 0.513 0.467 0.424 0.386 12% 15% 20% 0.870 0.833 0.797 0.756 0.694 0.712 0.658 0.579 0.636 0.572 0.482 0.567 0.497 0.402 0.432 0.335 0.376 0.279 0.327 0.233 0.194 0.162 0.893 0.507 0.452 $80,000 65,000 50,000 40,000 0.404 0.361 0.322 0.284 0.247
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Net Present Value Method The following data are accumulated by Lingle Company in evaluating the purchase of $139,100 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 В 9 10 $32,000 20,000 10,000 (1,000) Present Value of $1 at Compound Interest A 6% 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.665 0.513 0.627 0.467 0.592 0.424 0.558 0.386 0.943 0.890 0.840 0.792 0.747 0.705 12% 0.893 0.797 0.756 0.712 0.658 0.636 0.572 0.567 0.497 0.507 0.432 0.452 0.376 0.404 0.327 0.361 0.284 0.322 15% 0.870 0.247 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162
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