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Net present value method The following data are accumulated by Geddes Company in evaluating the purchase of $150,000 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $42,500 $80,000 Year 2 27,500 65,000 Year 3 12,500 50,000 Year 4 2,500 40,000 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 appearing in Exhibit 2 of this chapter. B. Would management be likely to look with favor on the proposal? Explain.

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Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207
BuyFind

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207

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Chapter
Section
Chapter 25, Problem 25.7EX
Textbook Problem

Net present value method

The following data are accumulated by Geddes Company in evaluating the purchase of $150,000 of equipment, having a four-year useful life:

  Net Income Net Cash Flow
Year 1 $42,500 $80,000
Year 2 27,500 65,000
Year 3 12,500 50,000
Year 4 2,500 40,000

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 appearing in Exhibit 2 of this chapter.

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

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