Net Present Value Method The following data are accumulated by Reynolds Company

Question

Net Present Value Method

The following data are accumulated by Reynolds Company in evaluating the purchase of $128,400 of equipment, having a four-year useful life:

a. Assuming that the desired rate of return is 20%, 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.

b. Would management be likely to look with favor on the proposal?
SelectYesNoItem 4

The net present value indicates that the return on the proposal is SelectgreaterlessItem 5 than the minimum desired rate of return of 20%.

Net Income Net Cash Flow Year 1 $37,000 $63,000 Year 2 23,000 49,000 Year 3 11,000 37,000 Year 4 (1,000) 25,000

Explanation / Answer

Net Present Value Method The following data are accumulated by Reynolds Company

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