Vet Present Value Method

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Capital Investment Analysis: Geddes Company

Net Present Value Method
The following data are accumulated by Geddes Company in evaluating the purchase of $88,700 of equipment, having a four-year useful life:
Net Income
Net Cash Flow
Year 1
$28,000
$48,000
Year 2
17,000
37,000
Year 3
8,000
28,000
Year 4
(1,000)
19,000
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
0.747
0.621
0.567
0.497
0.402
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 rate of return is 10%, determine the net present value for the proposal. Use the table of the present value of $1 presented above. If required, round to the nearest dollar. If
required, use the minus sign to indicate a negative net present value.
Present value of net cash flow
Amount to be invested
Net present value
LO
Transcribed Image Text:Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase of $88,700 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $28,000 $48,000 Year 2 17,000 37,000 Year 3 8,000 28,000 Year 4 (1,000) 19,000 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 0.747 0.621 0.567 0.497 0.402 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 rate of return is 10%, determine the net present value for the proposal. Use the table of the present value of $1 presented above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value. Present value of net cash flow Amount to be invested Net present value LO
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