Net Present Value Method The following data are accumulated by Reynolds Company
ID: 2560837 • Letter: N
Question
Net Present Value Method
The following data are accumulated by Reynolds Company in evaluating the purchase of $112,400 of equipment, having a four-year useful life:
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.
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 15%.
Net Income Net Cash Flow Year 1 $30,000 $51,000 Year 2 18,000 39,000 Year 3 9,000 30,000 Year 4 (1,000) 20,000Explanation / Answer
a.
b. Would management be likely to look with favor on the proposal?
NO
The net present value indicates that the return on the proposal is less than the minimum desired rate of return of 15%.
Year NCF DF(15%) PV 1 51000 0.87 44370 2 39000 0.756 29484 3 30000 0.658 19740 4 20000 0.572 11440 Present value of net cash flow 105034 Less amount to be invested 112400 Net present value -7366Related Questions
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