Question

Net present value LO P3 Beyer Company is considering the purchase of an asset for $250,000. 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 $83,000 $43,000 $76,000 $127,000 $49,000 $378,000

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

Answer 1

a. NPV = $20,996

b. Beyer should accept the investment

Step-by-step explanation:

Net Present Value is Calculated by Taking the Present Day (discounted) value of all future net cash flow based on the Business Cost of Capital and Subtracting the Initial Cost of the Investment.

Accept only Project that give a Positive Net Present Value.

Using a financial Calculator the Net Present Value computations will be as follows :

CF0 = ($250,000)

CF0 = $83,000

CF0 = $43,000

CF0 = $76,000

CF0 = $127,000

CF0 = $49,000

i = 12%

NPV = ?

NPV = $20,996

Conclusion

Beyer should accept the investment since it gives a positive Net Present Value

Answer 2

$20,996.49

Yes

Step-by-step explanation:

Net present value is the present value of after tax cash flows from an investment less the amount invested.

NPV can be found using a financial calculator.

Cash flow in year 0 = $-250,000

Cash flow in year 1 = $83,000

Cash flow in year 2 = $43,000

Cash flow in year 3 = $76,000

Cash flow in year 4 = $127,000

Cash flow in year 5 = $49,000

I = 12%

NPV = $20,996.49

The company should accept the project because the NPV is postive.

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you