The following data are accumulated by Reynolds Company in evaluating the purchas

Question

The following data are accumulated by Reynolds Company in evaluating the purchase of $122,300 of equipment, having a four-year useful life:

Net Income Net Cash Flow

Year 1 $28,000 $48,000

Year 2 17,000 37,000

Year 3 8,000 28,000

Year 4 (1,000) 19,000

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 10%, 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 $

Less amount to be invested $

Net present value $

Explanation / Answer

Statemnet showing Cash flows Particulars Time PVf@10% Amount PV Cash Outflows                            -                1.00    (122,300.00)     (122,300.00) PV of Cash outflows     (122,300.00) Cash inflows                     1.00          0.9090         48,000.00         43,632.00 Cash inflows                     2.00          0.8260         37,000.00         30,562.00 Cash inflows                     3.00          0.7510         28,000.00         21,028.00 Cash inflows                     4.00          0.6830         19,000.00         12,977.00 PV of Cash Inflows       108,199.00 NPV       (14,101.00) Present value of net cash flow $        108,199.00 Less amount to be invested $        122,300.00 Net present value $        (14,101.00)

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