Question
In: Accounting
The following data are accumulated by Geddes Company in evaluating the purchase of $92,700 of equipment,...
The following data are accumulated by Geddes Company in evaluating the purchase of $92,700 of equipment, having a four-year useful life:
| Net Income | Net Cash Flow | |||
| Year 1 | $30,000 | $50,000 | ||
| Year 2 | 18,000 | 39,000 | ||
| Year 3 | 9,000 | 29,000 | ||
| 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 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.
| Present value of net cash flow | $ |
| Amount to be invested | $ |
| Net present value | $ |
Solutions
Expert Solution
| Present value of net cash flows | $ 1,13,103.00 | ||
| Amount to be invested | $ 92,700.00 | ||
| Net Present Value | $ 20,403.00 | ||
Working
| Year | Net Cash Flow | Present value Discounting factor at 10% | Discounted Cash Flow |
| 1 | $ 50,000.00 | 0.909 | $ 45,450.00 |
| 2 | $ 39,000.00 | 0.826 | $ 32,214.00 |
| 3 | $ 29,000.00 | 0.751 | $ 21,779.00 |
| 4 | $ 20,000.00 | 0.683 | $ 13,660.00 |
| Present value of net cash flows | $ 1,13,103.00 | ||
| Amount to be invested | $ 92,700.00 | ||
| Net Present Value | $ 20,403.00 | ||
ekkarill92 answered 4 months agoRelated Solutions
The following data are accumulated by Reynolds Company in evaluating the purchase of $164,000 of equipment,...
The following data are accumulated by Reynolds Company in
evaluating the purchase of $164,000 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$35,000
$60,000
Year 2
22,000
46,000
Year 3
11,000
35,000
Year 4
(1,000)
23,000
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...
1. The following data are accumulated by Paxton Company in evaluating the purchase of $127,800 of...
1. The following data are accumulated by Paxton Company in
evaluating the purchase of $127,800 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$30,000
$50,000
Year 2
18,000
39,000
Year 3
9,000
29,000
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...
Net Present Value Method The following data are accumulated by Paxton Company in evaluating the purchase...
Net Present Value Method
The following data are accumulated by Paxton Company in
evaluating the purchase of $128,700 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$36,000
$61,000
Year 2
22,000
47,000
Year 3
11,000
35,000
Year 4
(1,000)
24,000
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...
Net Present Value Method The following data are accumulated by Paxton Company in evaluating the purchase...
Net Present Value
Method
The following data are
accumulated by Paxton Company in evaluating the purchase of $98,100
of equipment, having a four-year useful life:
Net Income
Net Cash Flow
Year 1
$31,000
$53,000
Year 2
19,000
41,000
Year 3
9,000
31,000
Year 4
(1,000)
21,000
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...
Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase...
Net Present Value Method
The following data are accumulated by Geddes Company in
evaluating the purchase of $153,200 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$44,000
$75,000
Year 2
27,000
58,000
Year 3
13,000
44,000
Year 4
(1,000)
29,000
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...
Net Present Value Method The following data are accumulated by Reynolds Company in evaluating the purchase...
Net Present Value Method
The following data are accumulated by Reynolds Company in
evaluating the purchase of $107,700 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$31,000
$53,000
Year 2
19,000
41,000
Year 3
9,000
31,000
Year 4
(1,000)
21,000
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...
Net Present Value Method The following data are accumulated by Paxton Company in evaluating the purchase...
Net Present Value Method
The following data are accumulated by Paxton Company in
evaluating the purchase of $129,200 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$38,000
$64,000
Year 2
23,000
49,000
Year 3
11,000
37,000
Year 4
(1,000)
25,000
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...
Net Present Value Method The following data are accumulated by Paxton Company in evaluating the purchase...
Net Present Value Method
The following data are accumulated by Paxton Company in
evaluating the purchase of $98,100 of equipment, having a four-year
useful life:
Net Income
Net Cash Flow
Year 1
$31,000
$53,000
Year 2
19,000
41,000
Year 3
9,000
31,000
Year 4
(1,000)
21,000
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...
Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase...
Net Present Value Method
The following data are accumulated by Geddes Company in
evaluating the purchase of $101,200 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$34,000
$57,000
Year 2
21,000
44,000
Year 3
10,000
33,000
Year 4
(1,000)
22,000
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...
A company is evaluating the addition of equipment to its present operations. They need to purchase...
A company is evaluating the addition of equipment to its
present operations. They need to purchase equipment for $160,000.
The 5-year MACRS GDS recovery method (see table 7.3) is appropriate
for the investment and the total tax rate is 40%. Gross revenue is
expected to be $30,000/YEAR while maintenance cost is expected to
be $5,000/YEAR. It is expected that operations will shut down by
the end of the 4th year with a salvage value of
$20,000.
Part A:
Draw a...
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