Broward College l Browe × / W CengageNOW! Online \' ag. @@ : Check My work(2 rem

Question

Broward College l Browe × / W CengageNOW! Online ' ag. @@ : Check My work(2 remaining) The following dete ere eccumulated by Reynolds Company in evaluating the purchese o $107,000 of equipment, having a four-year useful ife Yeor 1 Yaar 2 Yeer3 Yeer 4 $41,000 25,000 12,000 (1,000) Net Cash Flow $69,000 53,000 40,000 27,000 10. Present Value of $1 at Compound Interest 10% 12% 0.943 0.909 O. 93 0.370 0.333 0.890 0.826 0.797 0.756 0.694 0.840 .751 0712 0.658 0.579 0.92 0 36 .S 0.482 0.747 0.21 0.567 0.97 0.402 0.705 0.564 0.507 0.432 0.335 0.655 3S 0.376 0.279 0.027 047 0.404 0.327 0.233 ear 15% 9 0.592 0.424 0.361 0.204 0.194 0,558 038 0.322 0,247 0.162 a. Assuming that the desired rate of return is 20%, determine the net present value for the proposal. Use the table of the present value of $1 presented above. If required, ound to the nearest dollar. Present value of ner cash flowwy Less emount to be invested Net present value b. Would management be likely to look with favor on the proposal? The net present value indicates that the return on the proposal is ! Select than the minimum desired rate of return of 20%. Type here to searclh 627 PM 12/7/2017

Explanation / Answer

(a) Calculation of Net present value of the Equipment year Cash flows PV factor at 20% Present value cash inflows 1 41000 0.833 34153 2 25000 0.694 17350 3 12000 0.579 6948 4 -1000 0.482 -482 Present Value of cash Inflows 57969 Less: Amount investmed 107000 Net present value -49031 (b) Would management be likely to look with a fovor on the proposal Answer : "No" The Net present value indicates that return on the proposal is less then the desired rate of return of20%

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