Net Present Value Method The following data are accumulated by Paxton Company in evaluating the purchase of $129,100 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $41,000 $70,000 Year 2 25,000 54,000 Year 3 12,000 41,000 Year 4 (1,000) 27,000 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. Assuming that the desired rate of return is 10%, 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. Present value of net cash flow Amount to be invested Net present value b. Would management be likely to look with favor on the proposal? yes or no? The net present value indicates that the return on the proposal is ____________ than the minimum desired rate of return of 10%.
Net Present Value Method The following data are accumulated by Paxton Company in evaluating the purchase of $129,100 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $41,000 $70,000 Year 2 25,000 54,000 Year 3 12,000 41,000 Year 4 (1,000) 27,000 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. Assuming that the desired rate of return is 10%, 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. Present value of net cash flow Amount to be invested Net present value b. Would management be likely to look with favor on the proposal? yes or no? The net present value indicates that the return on the proposal is ____________ than the minimum desired rate of return of 10%.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 7E
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The following data are accumulated by Paxton Company in evaluating the purchase of $129,100 of equipment, having a four-year useful life:
Net Income | Net |
|||
Year 1 | $41,000 | $70,000 | ||
Year 2 | 25,000 | 54,000 | ||
Year 3 | 12,000 | 41,000 | ||
Year 4 | (1,000) | 27,000 |
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. Assuming that the desired
Present value of net cash flow | |
Amount to be invested | |
Net present value |
b. Would management be likely to look with favor on the proposal?
yes or no?
The net present value indicates that the return on the proposal
is ____________ than the minimum desired rate of return of 10%.
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