The following data are accumulated by Geddes Company in evaluating the purchase of $111,000 of...
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Accounting
The following data are accumulated by Geddes Company in evaluating the purchase of $111,000 of equipment, having a four-year useful life:
Net Income
Net Cash Flow
Year 1
$33,000
$56,000
Year 2
20,000
43,000
Year 3
10,000
32,000
Year 4
(1,000)
22,000
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 6%, determine the net present valu e 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
$fill in the blank 1
Amount to be invested
$fill in the blank 2
Net present value
$fill in the blank 3
b. Would management be likely to look with favor on the proposal? Yes, because the net present value indicates that the return on the proposal is greater than the minimum desired rate of return of 6%.
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