The following data are accumulated by Parker Company in evaluating the purchase of $126,000 of equipment, having

Question:

The following data are accumulated by Parker Company in evaluating the purchase of $126,000 of equipment, having a four-year useful life:

Net Cash Flow Net Income Year 1 Year 2 Year 3 Year 4 $65,000 $33,500 24,500 10,500 (6,500) 56,000 42,000 25,000

a. Assuming that the desired rate of return is 15%, determine the net present value for the proposal. Use the table of the present value of $1 appearing in Exhibit 1 of this chapter.
b.  Would management be likely to look with favor on the proposal? Explain.


Exhibit 1:

Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Accounting

ISBN: 9780538475006

24th Edition

Authors: Carl S Warren, James M Reeve, Jonathan Duchac

Question Posted: