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Net Present Value Method The following data are accumulated by Waiola Company in evaluating the purchase of $120,000 of equipment, having a 4-year useful life:

Net Present Value Method The following data are accumulated by Waiola Company in evaluating the purchase of $120,000 of equipment, having a 4-year useful life: Year 1 Year 2 Year 3 Year 4 Net Income Net Cash Flow $49,500 $79,500 28,500 58,500 17,000 (7,000) 47,000 37,000 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet a. Assuming that the desired rate of return is 20%, determine the net present value for the proposal. If required, round to the nearest dollar. Net present value 45,244 X b. Would management be likely to look with favor on the proposal? Yes because the net present value indicates that the return on the proposal is greater than the minimum desired rate of return of 20%. Feedback Check My Work a. The net present value method compares the amount to be invested with the present value of the net cash inflows. b. If the present value of the cash inflows equals or exceeds the amount to be invested, the proposal is desireable

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