Question

The following data are accumulated by Geddes Company in evaluating the purchase of $127,300 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $33,000 $56,000 Year 2 43,000 20,000 10,000 Year 3 32,000 Year 4 (1,000) 22,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.833 0.943 0.890 0.909 0.826 0.893 0.797 0.870 0.756 0.694 NM 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.705 0.564 0.507 0.432 0.402 0.335 0.279 0.233 N 0.665 0.513 0.452 0.376 0.627 0.467 0.404 0.327 0.592 0.424 0.361 0.284 0.194 0.558 0.386 0.322 0.247 0.162

Assuming that the desired rate of return is 6%, 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.

Present value of net cash flow	$
Amount to be invested	$
Net present value	$

Answer 1

Present value of net cash flow (56000*0.943+43000*0.890+32000*0.840+22000*0.792)	$135382
Amount to be invested	$127300
Net present value	$8082