Beyer Company is considering the purchase of an asset for $205,000. It is expect
ID: 2579439 • Letter: B
Question
Beyer Company is considering the purchase of an asset for $205,000. 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 $ 73,000 $ 57,000 $ 78,000 $ 138,000 $ 36,000 $ 382,000 a. Compute the net present value of this investment. (Round your answers to the nearest whole dollar.) b. Should Beyer accept the investment?
Year Net Cash Flows Present Value of 1 at 15% Present Value of Net Cash Flows 1 2 3 4 5 Totals $0 $0 Amount invested Net present value $0Explanation / Answer
a.
Net present value = Present value of cash inflows - Present value of cash outflows
b. Should Beyer accept the investment?
YES.
Year Net Cash Flows Present value of 1 at 15% Present value of Net Cash Flows 1 73,000 0.870 63,510 2 57,000 0.756 43,092 3 78,000 0.658 51,324 4 138,000 0.572 78,936 5 36,000 0.497 17,892 Totals 382,000 254,754 Amount Invested 205,000 Net present value 49,754 (254,754 - 205,000)Related Questions
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