Net present value method The following data are accumulated by Reynolds Company
ID: 2386417 • Letter: N
Question
The following data are accumulated by Reynolds Company in evaluating the purchase of $104,000 of equipment, having a four-year useful life:
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. Would management be likely to look with favor on the proposal?
Explain your answer please
The following data are accumulated by Reynolds Company in evaluating the purchase of $104,000 of equipment, having a four-year useful life:
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. Would management be likely to look with favor on the proposal?
Explain your answer please
Explanation / Answer
The net present value method involves discounting net cash flows to their present value and then comparing that present vale with the capital outlay required by the investment. The difference between these two amounts is referred to as net present value. A proposal is acceptablewhen net present value is zero or positive, When making a selection among acceptable proposals, the higher the positive net present value, the more attrative the investment.Related Questions
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