Managerial Accounting: E16-6 Dimitry Chernitsky is seeking part-time employment

Managerial Accounting 
Exercise 16-6 Determining Net Present Value 
Dimitry Chernitsky is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Dimitry expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows. 
Year of Operation Cash Inflow Cash Outflow 
2012 13,500 9,000 
2013 19,500 12,000 
2014 21,000 12,600 
2015 21,000 12,600 

In addition to these cash flows, Mr. Chernitsky expects to pay $21,000 for the equipment. He also expects to pay $3,600 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,500 salvage value and a four-year useful life. Mr. Chernitsky desires to earn a rate of return of 8 percent. 

Required (Round computations to the nearest whole penny): 
a. Calculate the net present value of the investment opportunity. 
b. Indicate whether the investment opportunity is expected to earn a return that is above or below the desired rate of return and whether it should be accepted.
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