Net Present Value MethodThe following data are accumulated by Reynolds Company in evaluating the purchase of $153,000 of equipment, having a four-year useful life:Net IncomeNet Cash FlowYear 1$40,000$67,000Year 224,00052,000Year 312,00039,000Year 4(1,000)26,000Present Value of $1 at Compound InterestYear6%20.9430.9090.8930.8700.83320.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.48250.7470.6210.5670.4970.40260.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.23390.5920.4240.3610.2840.194100.5580.3860.3220.2470.162a. 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 $1 presented above. If required, round to the nearest dollar.Present value of net cash flow$ _________________Less amount to be invested$ _________________Net present value$ _________________b. Would management be likely to look with favor on the proposal?_________________The net present value indicates that the return on the proposal is _________________ than the minimum desired rate of return of 6%.
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