Net present value method The following data are accumulated by Walola Company in evaluating the purchase of $129,800 of equipment, having a 4-year useful life: Net Income Net Cash Flow $56,000 43,000 32,000 22,000 Year 1 Year 2 Year 3 Year 4 Year 1 2 3 S 6 7 8 9 10 Present Value of $1 at Compound Interest 6% 10% 12% 15% 0.909 0.870 0.826 0.797 0.756 0.751 0.712 0.658 0.683 0.572 0.621 0.497 0.432 0.376 0.327 0.943 0.890 0.840 0.792 0.747 0.705 0.665 $33,000 20,000 10,000 (1,000) 0.627 0.592 0.558 0.564 0.513 0.467 0.424 0.386 0.893 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.284 0.247 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 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? because the net present value indicates that the return on the proposal is than the minimum desired rate of return of 15%. f Previous Next