Net Present Value Method The following data are accumulated by Paxton Company in
ID: 2536073 • Letter: N
Question
Net Present Value Method
The following data are accumulated by Paxton Company in evaluating the purchase of $188,500 of equipment, having a four-year useful life:
a. Assuming that the desired rate of return is 6%, 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.
Net Income Net Cash Flow Year 1 $43,000 $73,000 Year 2 26,000 56,000 Year 3 13,000 42,000 Year 4 (1,000) 28,000Explanation / Answer
Present value of net cash flow 176135 =(73000*0.943)+(56000*0.89)+(42000*0.84)+(28000*0.792) Amount to be invested 188500 Net present value -12365