The following data are accumulated by Wocester Hat Company in evaluating the pur

Question

The following data are accumulated by Wocester Hat Company in evaluating the purchase of $168,600 of equipment, having a four-year useful life Year 1 Year 2 Year 3 Year 4 Net Income (Loss) $43,000 26,000 13,000 (1,000) Net Cash Flows $73,000 56,000 2,000 28,000 Present Value of $1 at Compound Interest 15% 12% 0,893 0.890 0.826 0.797 0.756 0.694 0.712 0.636 Year 6% 10% 20% 0.943 0.909 0.870 0.833 0.840 0.751 0.658 0.579 0.572 0.482 7 0.621 0.567 0.497 0,402 0.507 0.432 0,335 0.792 0.683 0.705 0.5640 0.665 0.513 0.452 0.3760.279 0.6270.467 0.404 0.327 0.233 0.361 0,322 0.592 0.424 0.284 0.194 10 0.558 0.386 0.247 0.162 a Assuming that the desired rate of return s 12% determine the net present value for the proposal. Use the table of the present value of 1 presented above. If required use the minus sign to idicate a negative net present value Present value of net cash flow Amount to be invested Net p Yes lue No t be likely to look with favor on the proposal?

Explanation / Answer

a) Net present value :

b) No

Present value of net cash flow (73000*.893+56000*.797+42000*.712+28000*.636) 157533 Amount to be invested -168600 Net present value -11067

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