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

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Accounting

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Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase of $184,600 of equipment, having a four-year useful life: Year 1 Year 2 Net Income Net Cash Flow $42,000 $71,000 26,000 55,000 12,000 41,000 (1,000) 28,000 Present Value of $1 at Compound Interest Year 3 Year 4 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 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 184,600 X Amount to be invested -159,884 x Net present value 24,716 x 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 6%

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