FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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The following data are accumulated by Paxton Company in evaluating the purchase of $131,600 of equipment, having a four-year useful life:
Net Income | Net |
|||
Year 1 | $31,000 | $52,000 | ||
Year 2 | 19,000 | 40,000 | ||
Year 3 | 9,000 | 30,000 | ||
Year 4 | (1,000) | 20,000 |
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
Present value of net cash flow | $fill in the blank 1 |
Amount to be invested | $fill in the blank 2 |
Net present value | $fill in the blank 3 |
b. Would management be likely to look with favor on the proposal?
No
The net present value indicates that the return on the proposal is less than the minimum desired rate of return of 10%.
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