a. Assuming that the desired rate of return is 15%, determine the net present va

Question

a. Assuming that the desired rate of return is 15%, determine the net present value for the proposal. (If required, round to the nearest dollar.) Use the table of the present value of $1 presented above.

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

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

Explanation / Answer

a.     Assuming that the desired rate of return is 15%, determine the net present value for the proposal. (If required, round to the nearest dollar.) Use the table of the present value of $1 presented above.

ANS:-

Present Value of Net Cash Flow:

65000*0.870 + 56000*0.756 + 42000*0.658 + 25000*0.572

= $140822

Less amount to be invested:

= $126000

NET PRESENT VALUE (140822-126000)

=$14822

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

ANS:- YES THE MANAGEMENT WILL BE LIKELY TO LOOK WITH FAVOR ON THE PROPOSAL OF THE PROJECT SINCE IT HAS A POSITIVE NPV.

Present Value of Net Cash Flow:

65000*0.870 + 56000*0.756 + 42000*0.658 + 25000*0.572

= $140822

Less amount to be invested:

= $126000

NET PRESENT VALUE (140822-126000)

=$14822

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