The following data are accumulated by Geddes Company in evaluating the purchase of $130,000 of equipment, having a four-year useful life: Net IncomeNet Cash FlowYear 1$49,000 $81,500 Year 224,500 57,000 Year 313,000 45,500 Year 47,000 39,500 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.  Open spreadsheet Assuming that the desired rate of return is 15%, determine the net present value for the proposal. If required, round to the nearest dollar. Net present value$ Would management be likely to look with favor on the proposal? , the net present value indicates that the return on the proposal is   than the minimum desired rate of return of 15%.

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Asked Dec 6, 2019
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The following data are accumulated by Geddes Company in evaluating the purchase of $130,000 of equipment, having a four-year useful life:

  Net Income Net Cash Flow
Year 1 $49,000   $81,500  
Year 2 24,500   57,000  
Year 3 13,000   45,500  
Year 4 7,000   39,500  

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

 

 
Open spreadsheet

 

  1. Assuming that the desired rate of return is 15%, determine the net present value for the proposal. If required, round to the nearest dollar.

     

    Net present value $

     

  2. Would management be likely to look with favor on the proposal?

     , the net present value indicates that the return on the proposal is   than the minimum desired rate of return of 15%.

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Expert Answer

Step 1

Hence, the present value of cash inflows is $166,700.It is obtained by multiplying net cash flows with the PVIF that is 15%.

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Calculation of Net present value Net cash flows PVIF @ 15% Present value S81,500 $57,000 Year 0.87 $70,905 0.76 $43,320 $30,030 $22,515 $45,500 0.66 4 $39,500 0.57 Total $166,770

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Step 2

Hence,the net present value is $36,700. It is obtained by subt...

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Net present value = Present value of cash inflows – Initial investment = $166,700 – $130,000 = $36, 700

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