(Please provide me by the answer steps ) The following data are accumulated by W

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(Please provide me by the answer steps )

The following data are accumulated by Wocester Hat Company in evaluating the purchase of $162,200 of equipment, having a four-year useful life:

a. Assuming that the desired rate of return is 6%, 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 indicate a negative net present value.

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

Net Income (Loss) Net Cash Flows Year 1 $42,000             $71,000        Year 2 26,000             55,000        Year 3 12,000             41,000        Year 4 (1,000)            28,000       

Explanation / Answer

a) Calculate net present value :

Present value of net cash flow

(71000*.943+55000*0.89+41000*.84+28000*.792)

b) Yes, Management would be likey to look with favor on the proposal

Present value of net cash flow

(71000*.943+55000*0.89+41000*.84+28000*.792)

172519 Amount to be invested -162200 Net present value 10319

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