Beyer Company is considering the purchase of an asset for $225,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Assume that Beyer requires a 15% 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 | $ | 76,000 | $ | 55,000 | $ | 94,000 | $ | 159,000 | $ | 47,000 | $ | 431,000 | ||||||||||||
a. Compute the net present value of this
investment. (Round your answers to the nearest whole
dollar.)
b. Should Beyer accept the investment?
Yes
No
solution:
initial investment $225'000.00
I= 15%
year net cash flow *present value of 1 at 15% =present value of net cash flows
1 $ 76,000.00 0.86957 $66,087
2 $ 42,000.00 0.75614 $31,758
3 $ 99,000.00 0.65752 $65,094
4 $ 142,000.00 0.57175 $81,189
5 $ 48,000.00 0.49718 $23,864
total $267,996
amount invested $225,000
net present value $42,993
The Final answer may shift to 1 or 2 digits because of adjusting off. I have taken Present esteem factor for 5 decimal spots.
PART B.
Truly, Beyer ought to acknowledge the undertaking
Since present estimation of venture is certain the task is worth acknowledgment and ought to be acknowledged.
THANK YOU.
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