8. Net Present Value Method The following data are accumulated by Geddes Company
ID: 2585519 • Letter: 8
Question
8.
Net Present Value Method
The following data are accumulated by Geddes Company in evaluating the purchase of $110,100 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?
, because the net present value indicates that the return on the proposal is than the minimum desired rate of return of 15%.
Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up Statement showing Cash flows Particulars Time PVf 15% Amount PV Cash Outflows - 1.00 (110,100.00) (110,100.00) PV of Cash outflows = PVCO (110,100.00) Cash inflows 1.00 0.8700 57,000.00 49,590.00 Cash inflows 2.00 0.7560 44,000.00 33,264.00 Cash inflows 3.00 0.6580 33,000.00 21,714.00 Cash inflows 4.00 0.5720 22,000.00 12,584.00 PV of Cash Inflows =PVCI 117,152.00 NPV= PVCI - PVCO 7,052.00 a) Present value of net cash flow 117,152.00 Amount to be invested (110,100.00) Net present value 7,052.00 b) yes , management would be likely to look with favor on the proposalbecause the net present value indicates that the return on the proposal is higher than the minimum desired rate of return of 15%.
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