Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase of $143,900 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $35,000 $60,000 Year 2 22,000 46,000 Year 3 11,000 35,000 Year 4 (1,000) 23,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 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 1 4 0.792 0.636 0.572 S 0.747 0.683 0.621 0.564 0.567 0.497 0.432 0.482 0.402 0.335 6 0.507 2 0.705 0.665 0.622 0.513 0.452 0.376 0.279 0.467 0.404 0.327 0.233 9 0.592 0.424 0.284 0.194 0.361 0.322 10 0.558 0.386 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. Drocant net cash flow 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 0.194 0.284 0.247 10 0.558 0.386 0.322 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. Ir 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? No , because the net present value indicates that the return on the proposal is less than the minimum desired rate of return of 10% Feedback Check My Work a. Multiply the present value of $1 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