Question

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 throughout each year. Assume that Beyer requires a 12% return on its investments. Compute the net present value of this investment. Should Beyer accept the investment

Answer 1

Complete question is

Year Net cash flows

1 $65,000

2 $57,000

3 $81,000

4 $139,000

5 $38,000

6 $380,000"

Solution

Year (a)$ (b)$ (c=a*b)$

Year 1 65000 0.893 58045

Year 2 57000 0.797 45429

Year 3 81000 0.712 57672

Year 4 139000 0.636 88404

Year 5 38000 0.567 21546

$271,096

Totals

Total present value of cash inflow (a) $271,096

Total cash outflow (b) $250,000

Net Present Value (c=a-b) $21,096

Note:

A = Net Cash Flows

B = Present Value of 1 at 12%

C = Present Value of cash flows

b) Beyer company should accept investment due to positive net present value of $21,096