Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase of $141,300 of equipment, having a four-year useful life: Year 1 Year 2 Net Income Net Cash Flow $35,000 $59,000 21,000 45,000 10,000 34,000 (1,000) 23,000 Present Value of $1 at Compound Interest Year 3 Year 4 6% Year 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 Check My Work 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 10%, 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 85,628 x Amount to be invested Net present value b. Would management be likely to look with favor on the proposal? because the net present value indicates that the return on the proposal is than the minimum desired rate of return of 10% Foedback Check My Work a. Multiply the present value of si factor for each year (Refer Exhibit 2 in the text.) by that year's net cash flow. Subtract the amount to be invested from the total present value of the net cash flow. Will management be more favorable to a positive net present value or a negative net present value? b. Consider the time value of money, Previous Next > Check My Work