Exercise 24-2 Net present value LO P3 Beyer Company is considering the purchase

Question

Exercise 24-2 Net present value LO P3 Beyer Company is considering the purchase of an asset for $220,000. It is expected to produce the following net cash fows. The cash flows occur evenly throughout each year. Assume that Beyer requires a 12% 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.) Year 1Year 2 Year 3 $73,000 $55,000 $80,000 $133,000 $42,000 $383,000 Year 4 Year 5 Total Net cash flows a. Compute the net present value of this investment. sen Net Cash Flows Value of 1 at 12% Present Value of Net Cash Flows Year Totals Amount invested Net present value b. Should Beyer accept the investment? O Yes O No

Explanation / Answer

Year Net cash flows PV factor present value 1 73000 0.8929 65182 2 55000 0.7972 43846 3 80000 0.7118 56944 4 133000 0.6355 84522 5 42000 0.5674 23831 Totals 383000 274325 Amount invested 220000 net preent value 54325 b Yes

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