The following data are accumulated by Waiola Company in evaluating the purchase of $111,600 of equipment, having a 4-year useful life:

Year	Net Income	Net Cash Flow
Year 1	$32,000	$55,000
Year 2	20,000	42,000
Year 3	10,000	32,000
Year 4	(1,000)	21,000

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 12%, 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.

Line Item Description	Amount
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?

YesNoYes

, because the net present value indicates that the return on the proposal is

greaterlessgreater

than the minimum desired rate of return of 12%.

Feedback Area

Feedback

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.