The following data are accumulated by Paxton Company in evaluating the purchase of $113,600 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $35,000 $59,000 Year 2 21,000 45,000 Year 3 10,000 34,000 Year 4 (1,000) 23,000 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 0.621 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 0.284 0.194 10 0.558 0.386 0.322 0.247 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 $fill in the blank 1 Amount to be invested $fill in the blank 2 Net present value $fill in the blank 3 b. Would management be likely to look with favor on the proposal? Yes The net present value indicates that the return on the proposal is greater than the minimum desired rate of return of 15%.

Net Present Value Method The following data are accumulated by Paxton Company in evaluating the purchase of $113,600 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $59,000 $35,000 21,000 Year 2 45,000 Year 3 Year 4 10,000 34,000 (1,000) 23,000 Present Value of $1 at Compound Interest 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 Year 1 2 0.826 0.797 0.756 0.890 0.840 0.694 0.579 3 0.751 0.712 0.658 4 0.636 0.572 0.482 0.792 0.747 0.683 0.621 5 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 0.284 0.194 10 0.558 0.386 0.322 0.247 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? Yes The net present value indicates that the return on the proposal is greater than the minimum desired rate of return of 15%