Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase of $121,400 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $31,000 $53,000 Year 2 19,000 41,000 31,000 Year 3 9,000 Year 4 (1,000) 21,000 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 0.567 0.497 0.402 0.621 0.564 6 0.335 0.705 0.665 0.507 0.452 0.432 0.376 7 0.513 0.279 8 0.627 0.467 0.404 0.327 0.233 0.194 9 0.592 0.424 0.361 0.284 10 0.558 0.386 0.322 0.247 0.162 CULUM Chapter 11 Homework (Application) 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.636 0.572 0.482 0.683 0.621 5 0.747 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 0.284 10 0.361 0.322 0.558 0.386 0.194 0.162 0.247 a. Assuming that the desired rate of return is 6%, 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 $ Amount to be invested Net present value 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 6%