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Determine the net present value for the proposal

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Reference no: EM13981270

The following data are accumulated by Reynolds Company in evaluating the purchase of $129,200 of equipment, having a four-year useful life:

 

Net Income

Net Cash Flow

Year 1

$38,000

  

$64,000

  

Year 2

23,000

  

49,000

  

Year 3

11,000

  

37,000

  

Year 4

(1,000)

  

25,000

  

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 20%, 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?

Select YES OR NO

The net present value indicates that the return on the proposal is BLANK than the minimum desired rate of return of 20%.

Reference no: EM13981270

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