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ID: 2414835 • Letter: M
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ments@etakeAssignment com/lm/takeAssignment/TakeAssignmentMan.doinkrssignments Net Present Value Method The folowing data are accumulated by Geuldes Company in avaluating the purchase of $129,800 of equi Not Cash Flow Net Income Year 1 Year 2 Year 3 Year 4 33,000 20,000 10,000 (1,000) $56,000 43,000 32,000 22,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0870 0.833 2 0.890 0.826 0.797 0.750 0.694 3 0.840 0.7310.712 0.6580.579 4 0.792 0.683 0.636 0.5720.482 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 80.627 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 15%, determine the net present value for the prop 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? because the net present value indicates that the return on the proposal isExplanation / Answer
Requirement (a)
Present Value of Net Cash Flows
$114,868
Less : Amount to be invested
$129,800
Net Present Value [NPV]
($14,932) , Negative NPV
Present Value of Net Cash Flows
= [ $56,000 x 0.870] +[43,000 x 0.756] + [32,000 x 0.658] + [22,000 x 0.572]
= 48,720 + 32,508 + 21,056 + 12,584
= $114,868
Amount to be invested = $129,800
Net Present Value = $114,868 - $129,800 = ($14,932) , Negative NPV
Requirement (b)
NO. Because the net present value of the proposed project is negative, ($14,932) , Negative NPV
Present Value of Net Cash Flows
$114,868
Less : Amount to be invested
$129,800
Net Present Value [NPV]
($14,932) , Negative NPV
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