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Problem 6 Net Present Value Method The following data are accumulated by Bannister Company in evaluating the purchase of $48,500 of equipment, having a four-year
Problem 6 Net Present Value Method The following data are accumulated by Bannister Company in evaluating the purchase of $48,500 of equipment, having a four-year useful life: Net Cash Flow 19,000 23,000 20,000 15,000 Net Income 6,875 10,875 7,875 2,875 Year 1 Year 2 Year 3 Year 4 Present Value of $1 at Compound Interest Year 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 0.279 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 0.558 0.386 0.322 0.247 0.162 6% 2 3 4 5 8 9 10 a. Assuming that the desired rate of return is 15%, determine the net present value for the proposal. (If required, round to the nearest dollar.) Use the table of the present value of $1 presented above. Present value of net cash flow $ Less amount to be invested $ Net present value b. Would management be likely to look with favor on the proposal? The net present value indicates that the retun on the proposal is than the minimum desired rate of return of 15%
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