1. Net Present Value Method

   The following data are accumulated by Paxton Company in evaluating the purchase of $160,300 of equipment, having a four-year useful life:

   	Net Income		Net Cash Flow
   Year 1	$41,000		$69,000
   Year 2	25,000		53,000
   Year 3	12,000		40,000
   Year 4	(1,000)		27,000

   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 15%, 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? The net present value indicates that the return on the proposal is than the minimum desired rate of return of 15%.

Check My Work2 more Check My Work uses remaining.