LA Company is considering the purchase of an asset for $235,000. It is expected to produce...
LA Company is considering the purchase of an asset for $235,000. 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). Year 1 Year 2 Year 3 Year 4 Year 5 Total Net cash flows $ 74,000 $ 52,000 $ 97,000 $ 143,000 $ 50,000 $ 416,000 a. Compute the net present value of this investment. b. Should Beyer accept the investment?
Homework Answers
| Calculation of NPV | |||
| Years | Cash Flows | Dicount Factor @ 12% | Present Value |
| 0 | -$2,35,000 | 1.00 | -$2,35,000 |
| 1 | $74,000 | 0.8929 | $66,071 |
| 2 | $52,000 | 0.7972 | $41,454 |
| 3 | $97,000 | 0.7118 | $69,043 |
| 4 | $1,43,000 | 0.6355 | $90,879 |
| 5 | $50,000 | 0.5674 | $28,371 |
| Net present Value | $60,819 | ||
NPV is the difference between present value of the future cash flows and the initial investment.
Since the NPV is positive, Beyer should accept the investment.
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Beyer Company is considering the purchase of an asset for
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The cash flows occur evenly within each year. Assume that Beyer
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