Question

Beyer Company is considering the purchase of an asset for $215,000. 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		$	87,000			$	42,000			$	96,000			$	150,000			$	54,000			$	429,000

a. Compute the net present value of this investment.
b. Should Beyer accept the investment?

Compute the net present value of this investment. (Round your answers to the nearest whole dollar.)

Year Net Cash Flows Present Value of 1 at 12% Present Value of Net Cash Flows 1 $87,000selected answer correct 0.8929selected answer correct $77,679selected answer incorrect 2 42,000selected answer correct 0.7972selected answer correct 33,482selected answer correct 3 96,000selected answer correct 0.7118selected answer correct 68,331selected answer incorrect 4 150,000selected answer correct 0.6355selected answer correct 95,328selected answer incorrect 5 54,000selected answer correct 0.5674selected answer correct 30,641selected answer correct Totals $429,000 $305,461 Amount invested (215,000)selected answer correct Net present value $90,461

Answer 1

Answer

--Requirement [a]

Year	Net Cash Flows	Present Value of 1 at 12%	Present Value of Net Cash Flows
1	$87,000	0.8929	$77,682	87000 x 0.8929
2	$42,000	0.7972	$33,482	42000 x 0.7972
3	$96,000	0.7118	$68,333	96000 x 0.7118
4	$150,000	0.6355	$95,325	150000 x 0.6355
5	$54,000	0.5674	$30,640	54000 x 0.5674
Totals	$429,000		$305,462
Amount invested			($215,000)
Net present value			$90,462

--Requirement [b]
Yes, the invested should be accepted, because NPV is positive.