The following data are accumulated by Reynolds Company in evaluating the purchase of $104,000 of equipment, having a four-year useful life:
Net Income
Year 1 $38,000
Year 2 23,000
Year 3 11,000
Year 4 (1,000)
Net Cash Flow
Year 1 = 64,000
Year 2 = 49,000
Year 3 = 37,000
Year 4 = 25,000
A.) Assuming that the desired rate of return is 15%, determine the net present value for the proposal. Use the table of the present value of $1
B.) Would management be likely to look with favor on the proposal? Explain.
Present Value of $1 at Compound Interest
Year 1 @ 15% = 0.870
Year 2 @ 15% = 0.756
Year 3 @ 15% = 0.712
Year 4 @ 15% = 0.636