Beyer Company is considering the purchase of an asset for $230,000. It is expect

Question

Beyer Company is considering the purchase of an asset for $230,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Assume that Beyer requires a 15% return on its investments. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Total Year 1 $77,000 $42,000 $70,000 $137,000 $43,000 $369,000 Year 2 Year 3 Year 4 Year 5 Net cash flows a. Compute the net present value of this investment Net Cash Flows Present Value of1 Present Value of Net Cash Flows Year at 15% 2 4 Totals Amount invested Net present value b. Should Beyer accept the investment? Yes

Explanation / Answer

Year Net cash flows PV factor Preset value of Net cash flows 1 77000 0.8696 66959 2 42000 0.7561 31756 3 70000 0.6575 46025 4 137000 0.5718 78337 5 43000 0.4972 21380 Total 244457 Amount invested 230000 Net present value 14457 b Yes, as NPV is positive

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