Beyer Company is considering the purchase of an asset for
$250,000. It is expected to produce the following net cash flows.
The cash flows occur evenly within each year. Assume that Beyer
requires a 12% return on its investments. (PV of $1, FV of $1, PVA
of $1, and FVA of $1) (Use appropriate factor(s) from the
tables provided.)
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Total | |||||||||||||||||||
| Net cash flows | $ | 86,000 | $ | 56,000 | $ | 86,000 | $ | 173,000 | $ | 54,000 | $ | 455,000 | ||||||||||||
a. Compute the net present value of this
investment.
b. Should Beyer accept the investment?
CALCULATION OF NET PRESENT VALUE
| YEAR | BASE (12%) | PV FACTOR (A) | CASH INFLOWS [B) | PV OF CASH FLOW B*A |
| 0 | 1 | 1.00000 | -250000 | -250000.00 |
| 1 | 1/1.12 | 0.893 | 86000.00 | 76785.71 |
| 2 | (1/1.12)^2 | 0.797 | 56000.00 | 44642.86 |
| 3 | (1/1.12)^3 | 0.712 | 86000.00 | 61213.10 |
| 4 | (1/1.12)^4 | 0.636 | 173000.00 | 109944.63 |
| 5 | (1/1.12)^5 | 0.567 | 54000.00 | 30641.05 |
| NET PRESENT VALUE | 73227.35 |
NET PRESENT VALUE = $73227.35
PROJECT SHOULD BE ACCEPTED
THANK YOU , PLEASE UPVOTE
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