The following data are accumulated by Geddes Company in evaluating the purchase of $140,100 of equipment, having a four-year useful life:
| Net Income | Net Cash Flow | |
|---|---|---|
| Year 1 | $32,000 | $54,000 |
| Year 2 | 20,000 | 42,000 |
| 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 | 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 6%, determine the net present value for the proposal.
b. Would management be likely to look with favor on the proposal?
You are considering two insurance settlement offers. The first offer includes annual payments of $5,000, $7,500, and $10,000 over the next three years, respectively. The other offer is the payment of one lump sum amount today. You are trying to decide which offer to accept given the fact that your discount rate is 5%.
What is the minimum amount that you will accept today if you are to select the lump sum offer?
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